EDGAR 10-K Filing

Company CIK: 764195
Filing Year: 2022
Filename: 764195_10-K_2022_0001493152-22-006140.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
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 its innovative approach to virus-like particles (“VLPs”), including a proprietary enveloped VLP (“eVLP”) platform technology, VBI develops vaccine candidates that mimic the natural presentation of viruses, designed to elicit the innate power of the human immune system. VBI is committed to targeting and overcoming significant infectious diseases, including hepatitis B (“HBV”), COVID-19 and coronaviruses, and cytomegalovirus (“CMV”), as well as aggressive cancers including glioblastoma (“GBM”). VBI is headquartered in Cambridge, Massachusetts, with research operations in Ottawa, Canada, and a research and manufacturing site in Rehovot, Israel.
Product Pipeline
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. VBI’s proprietary enveloped VLP (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 (“FDA”), European Medicines Agency’s (“EMA”), United Kingdom Medicines and Healthcare products Regulatory Agency (“MHRA”), 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 immuno-oncology and infectious disease.
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).
Since early 2020, the disease burden of the COVID-19 pandemic has been staggering. To date, the World Health Organization (“WHO”) estimates that there have been 430 million cases of COVID-19, resulting in 5.9 million deaths worldwide. In the U.S., between February 2020 and September 2021, the CDC estimates 146.6 million COVID-19 infections, 7.5 million hospitalizations, and 921,000 deaths.
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
● 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 January 31, 2022:
Indication
Program
Technology
Current Status
Approved Vaccine
● Hepatitis B
PreHevbrio1,2
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)
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 will be reflected in a future CDC publication 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 expects to commercially launch 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:
· Israel: Approved and commercially available, under the brand name Sci-B-Vac®, for active immunization against HBV infection.
· European Union (“EU”): On February 25, 2022, we announced that the EMA’s Committee for Medicinal Products for Human Use (“CHMP”) adopted a positive opinion for VBI’s 3-antigen HBV vaccine for active immunization against infection caused by all known subtypes of HBV in adults, under the name PreHevbri [Hepatitis B vaccine (recombinant, adsorbed)]. The European Commission (“EC”) will review the CHMP recommendation and a final decision on the Marketing Authorization Application (“MAA”) for PreHevbri in the EU is expected in the coming months. If approved by the EC, the centralized marketing authorization would be valid in all EU Member States as well as in the European Economic Area (“EEA”) countries - Iceland, Liechtenstein, and Norway.
· United Kingdom (“UK”): The MAA for VBI’s 3-antigen HBV vaccine is expected to be reviewed 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.
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 and was designed to assess VBI-2905, our eVLP vaccine candidate directed against the SARS-CoV-2 Beta variant, as both a 1-dose booster in individuals previously immunized with a mRNA vaccine and as a primary 2-dose series in unvaccinated adults. Initial data from the 1-dose booster Phase Ib portion of the ongoing study is expected around the end of Q1 2022, dependent upon receipt of data from third party clinical research organizations. In addition, 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 mid-year 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. Initial data from this study is expected in the second half of 2022.
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. Initial 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 Q2 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 second half of 2022.
Impact of the COVID-19 Pandemic on Our Business
In December 2019, SARS-CoV-2 was reported to have surfaced in Wuhan, China, and on March 12, 2020, the WHO declared the global outbreak of COVID-19, the disease caused by SARS-CoV-2, to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, many countries, including the United States, Canada, Israel and China, have imposed unprecedented restrictions on travel, quarantines, and other public health safety measures. The development of effective vaccines to prevent this disease has been a major global priority, and as of the date of this report, the FDA has approved two vaccines for the prevention of COVID-19, Pfizer-BioNTech COVID-19 Vaccine, marketed as Comirnaty, and Moderna COVID-19 Vaccine, marketed as Spikevax. Multiple vaccine candidates against SARS-CoV-2 continue to be under development, and certain large, multinational pharmaceutical companies have been granted and continue to seek authorizations for emergency approval by the FDA. The treatments for COVID-19, including symptomatic and supportive therapies, among other things, continue to be updated on a rolling basis by healthcare authorities and agencies.
Since early in the pandemic SARS-CoV-2 variants started to emerge and certain of these variants have been identified as having a significant public health impact. VBI is closely following changing SARS-CoV-2 characteristics and plans to study the impact of specific mutations that may impact vaccine efficacy and vaccine design. Further investigations are required to understand the impact of specific mutations on viral properties and the effectiveness of vaccines.
We have four ongoing clinical studies being conducted, by us or our partners, at clinical sites worldwide: 1) the Phase II study of VBI-2601 (BRII-179) and BRII-835 (VIR-2218) at multiple study sites in Asia Pacific countries; 2) the Phase IIa/IIb study of VBI-2601 (BRII-179) at multiple study sites in Asian Pacific countries; 3) the Phase I/IIa study of VBI-1901 in the United States; and 4) the Phase Ib clinical study of VBI-2902 and VBI-2905 in Canada and Mexico. In addition to the active clinical studies, we have several planned clinical studies expected to begin in 2022, including a further clinical study with VBI-1901 in the United States, and the continued clinical evaluation of our coronavirus vaccine candidates, including VBI-2901 (VBI’s multivalent pan-coronavirus vaccine candidate) in Canada and potentially other countries. The enrollment of patients at some of the clinical sites in our studies has in the past been suspended, and may again be suspended in the future due to the COVID-19 pandemic, and enrollment of patients at other clinical sites may be suspended or delayed as hospitals and clinics where we are conducting or planning to conduct clinical trials may reallocate resources and limit access to or close clinical facilities due to the COVID-19 pandemic. Additionally, if our trial participants are unable to travel to or visit our clinical study sites as a result of quarantines or other restrictions resulting from the COVID-19 pandemic, we could experience higher drop-out rates or delays in our clinical studies. Government-imposed quarantines, shelter-in-place and similar restrictions may also require us to temporarily close our clinical sites, research laboratories, or manufacturing facility. Furthermore, if we determine that our trial participants may suffer from exposure to COVID-19 as a result of their participation in our clinical trials, we may voluntarily close certain clinical sites as a safety measure until we reasonably believe that the likelihood of exposure has subsided. As a result, our expected development timelines for VBI-2601 (BRII-179), VBI-1901, our coronavirus vaccine candidates, and possibly our regulatory timelines for our 3-antigen HBV vaccine, in countries other than Unites States, may be negatively impacted.
Severe and/or long-term disruptions in our operations will negatively impact our business, operating results and financial condition in other ways, as well. The COVID-19 pandemic has caused interruptions to global supply chains which have significantly limited the availability of raw materials, laboratory supplies, and manufacturing equipment. The extent to which the COVID-19 pandemic will continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted. We anticipate that the stress of COVID-19 on healthcare systems generally around the globe will negatively impact regulatory authorities and the third parties that we may engage in connection with the development and testing of our coronavirus vaccine candidates.
As a result of the COVID-19 pandemic, we continue to reduce exposure risk with fewer employees on site at any given time at both our manufacturing facility in Israel, where we manufacture our 3-antigen HBV vaccine and VBI-2601, and at our research and development laboratories in Ottawa, Canada. Going forward, we will continue to monitor the ongoing COVID-19 situation and will implement and enforce appropriate safety and health measures to ensure the safety of our employees.
Our manufacturing facility in Israel and contract development and manufacturing organizations (“CDMOs”) that we engage to manufacture our eVLP vaccine candidates are dependent on sourcing raw materials from third party suppliers. The COVID-19 pandemic has impacted lead times and availability of many raw materials, and led to supply chain disruptions and shipping delays, all of which may adversely impact our ability to manufacture products in a timely manner. Further, restrictions on our ability to travel, stay-at-home orders and other similar restrictions on our business have limited our ability to support our operations.
The ultimate impact of the global COVID-19 pandemic or a similar health epidemic continues to be highly uncertain and subject to future developments. Relevant factors include, but are not limited to, the duration of the COVID-19 pandemic, the emergence of new variants, and any additional preventative and protective actions that regulators, or our board of directors or management may determine are needed. We do not yet know the full extent of potential delays or impacts on our business, our clinical studies, our research programs, the recoverability of our assets, and our manufacturing; however, the COVID-19 pandemic may continue to disrupt or delay our business operations, including with respect to efforts relating to potential business development transactions, and it could disrupt the marketplace which could have an adverse effect on our operations.
In addition, while the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, it has significantly disrupted global financial markets, and may limit our ability to access capital, which could in the future negatively affect our liquidity. A recession or market correction resulting from the continuation of the COVID-19 pandemic may occur and could materially affect our business and the value of our common shares.
Corporate History
We were incorporated under the laws of British Columbia by Memorandum of Association on April 9, 1965 under the name “Alice Arm Molybendum Co. Ltd.” On October 21, 1965, we changed our name to “Alice Arm Mining Ltd.” and subsequently, on July 13, 1975, changed our name to “New Congress Resources Ltd.” On January 12, 1983, we changed our name to “Levon Resources Ltd.”
On July 9, 2015, we, then known as Levon Resources Ltd. (“Levon”), completed a plan of arrangement (the “Levon Merger”) pursuant to which SciVac Ltd. (“SciVac”), an Israel based company, completed a reverse takeover of Levon. Levon changed its name from Levon Resources Ltd. to SciVac Therapeutics Inc. and SciVac became our wholly-owned subsidiary.
On May 6, 2016, we completed our acquisition of VBI Vaccines (Delaware) Inc. (“VBI DE”), pursuant to which Seniccav Acquisition Corporation, a Delaware corporation and our wholly-owned subsidiary, merged with and into VBI DE, with VBI DE continuing as the surviving corporation and as our wholly-owned subsidiary (the “VBI-SciVac Merger”). Upon completion of the VBI-SciVac Merger, we (then named “SciVac Therapeutics Inc.”) changed our name to “VBI Vaccines Inc.” and received approval for the listing of our common shares on the NASDAQ Capital Market. Our common shares commenced trading on the NASDAQ Capital Market at the opening of trading on May 9, 2016 under our new name and the symbol “VBIV.” Following the effective time of the VBI-SciVac Merger, our common shares began to trade on the Toronto Stock Exchange (“TSX”) under the new symbol “VBV.” Effective as of March 23, 2018, we voluntarily delisted our common shares from the TSX.
Our registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver British Columbia V6C 2X8. Our principal executive offices are located at 160 Second Street, Floor 3, Cambridge, MA 02142; our manufacturing operations are located at 13 Gad Feinstein Road, POB 580, Rehovot, Israel 7610303 and our research operations are located at 310 Hunt Club Road East, Suite 201, Ottawa, Ontario Canada K1V 1C1.
Background of VBI DE
VBI DE was originally established in 1970 as Paulson Capital Corp., an Oregon corporation (“Paulson Oregon”), which began as a holding company whose operating subsidiary, Paulson Investment Company, Inc., was a full-service brokerage firm. Effective March 20, 2014, Paulson Oregon changed its state of incorporation from the State of Oregon to the State of Delaware, and as a result, Paulson Oregon became “Paulson Capital (Delaware) Corp.” and Paulson Oregon ceased to exist.
On July 25, 2014, Variation Biotechnologies (US), Inc. (“VBI US”) completed its merger with VBI Acquisition Corp. (“Merger Sub”), a Delaware corporation and wholly-owned subsidiary of Paulson Capital (Delaware) Corp., whereby Merger Sub merged with and into VBI US, with VBI US continuing as the surviving corporation. As a result of this merger, VBI US was acquired by, and became a wholly-owned subsidiary of Paulson Capital (Delaware) Corp., which changed its name to VBI Vaccines Inc. and then subsequently to VBI Vaccines (Delaware) Inc. on July 19, 2016.
Subsidiaries
SciVac, located in Rehovot, Israel, is our wholly-owned subsidiary that was incorporated on April 18, 2005 pursuant to the Israeli Companies Law (1999), as amended.
VBI DE, a Delaware corporation, is our wholly-owned subsidiary.
VBI US, a Delaware corporation, is a wholly-owned subsidiary of VBI DE and was incorporated on December 18, 2006 in the State of Delaware.
Variation Biotechnologies Inc. (“VBI Cda”), located in Ottawa, Ontario, Canada, is a wholly-owned subsidiary of VBI US, and was incorporated on August 24, 2001 under the Canada Business Corporations Act.
SciVac Hong Kong Limited, is a wholly-owned subsidiary, and was incorporated pursuant to the Companies Ordinance (Chapter 622 of the Laws of Hong Kong) on January 29, 2019.
VBI Vaccines B.V., is a wholly-owned subsidiary, and was incorporated on October 21, 2020 in the Netherlands.
Partnerships, Collaborations, and Licensing Agreements
Our focus is to develop and deliver vaccines and therapeutics that target significant infectious diseases and aggressive cancers. As part of this strategy, we have entered into, and expect to enter into additional, partnerships, collaborations, and licensing agreements. These agreements help VBI commercialize our approved product, advance our investigational programs, and access additional expertise, capabilities, resources, and funding.
Partnership with Syneos Health (“Syneos”)
On December 7, 2020, we announced a partnership for the commercialization of our 3-antigen HBV vaccine with Syneos, who was selected for their robust and innovative commercialization experience and deep vaccine expertise, including successful partnerships with leading vaccine manufacturers. VBI and Syneos have been working together on the pre-launch strategy and activity since 2019. As part of this partnership, we now have 80 fully-dedicated field team members across medical affairs, market access, and sales, as well as a highly-experienced leadership team.
The Master Commercial Services Agreement (“Commercial Agreement”), dated December 17, 2019, has an initial term of five (5) years. Details regarding activities, leaderships team, and field teams are covered in various work orders, entered into pursuant to and governed by the Commercial Agreement.
Collaboration and License Agreement with Brii Biosciences (“Brii Bio”)
On December 4, 2018, we entered into the License Agreement with Brii Bio, pursuant to which, among other things, subject to terms and conditions set forth in the License Agreement, amended on April 8, 2021:
(i) we and Brii Bio agreed to collaborate on the development of a HBV recombinant protein-based immunotherapeutic in the Licensed Territory (as defined in the License Agreement), 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”)
(ii) we 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
(iii) Brii Bio granted us 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, we and Brii Bio further amended the License Agreement (the “Second Amendment”) subject to the following additional terms and conditions:
(i) we 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
(ii) Brii Bio granted us 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 words other than the Licensed Territory.
Pursuant to the Second Amendment, and the initial development plan, Brii Bio shall fund all clinical trials for the Licensed Territory. We 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 for the collaboration under the License Agreement, we received from Brii Bio a total upfront payment of $11 million. We are also eligible to receive an additional $117.5 million in potential milestone payments, along with potential low double-digit royalties on commercial sales in the Licensed Territory. In connection with the License Agreement, we and Brii Bio entered into a stock purchase agreement, dated as of December 4, 2018, pursuant to which we issued to Brii Bio an aggregate of 2,295,082 common shares in exchange for a gross contractual allocation of $7 million (included in the $11 million upfront payment), or $3.05 per share, which had a fair value of $3.6 million on the date of issuance.
There was no additional consideration contemplated in the Second Amendment.
The License Agreement will be in effect until the last-to-expire of the latest of the following terms in each region of the Licensed Territory: (i) expiration, invalidation or lapse of the last of our patent claiming a Licensed Product, (ii) 10 years from the date of first commercial sale of a Licensed Product in the applicable region, or (iii) termination or expiration of our obligation to pay third party royalties with respect to sales of a Licensed Product. Upon expiration (but not an earlier termination) of the License Agreement in each region of the Licensed Territory, we will grant Brii Bio a perpetual, non-exclusive, fully paid-up, royalty free license under our technology related to the Licensed Compounds (as defined in the License Agreement) or Licensed Products pursuant to the License Agreement in such region to make and sell Licensed Products for the diagnosis and treatment of HBV in such region. Each party may terminate the License Agreement upon a material breach of the License Agreement which has not been cured within 60 days (or 30 days for a breach payment obligations) after notice from the terminating party requesting cure of the breach, or upon bankruptcy or insolvency, either voluntary or involuntary, dissolution, or liquidation of a party. In addition, Brii Bio may terminate the License Agreement without cause upon 180 days’ notice or, if the Data and Safety Monitoring Board or any regulatory authority in the Licensed Territory imposes a clinical hold on any clinical trial for a Licensed Product for six consecutive months, immediately upon notice. We may terminate the License Agreement immediately upon notice, if Brii Bio or its affiliates, directly, or indirectly through any third party, commences any interference or opposition proceeding with respect to, challenges the validity or enforceability of, or opposes any extension of or the grant of a supplementary protection certificate with respect to, any patents owned or controlled by us related to the composition or the method of making or using Licensed Compounds or Licensed Products, or are otherwise necessary or useful to research, develop, make, or otherwise commercialize the licensed compounds or Licensed Products.
Prior to us entering into the License Agreement, we paid $6 million to terminate a distribution agreement with a third party who previously held certain distribution rights to certain Asian markets.
Collaboration Agreement with GlaxoSmithKline Biologicals S.A. (“GSK”)
On September 10, 2019, we entered into the Collaboration Agreement with GSK pursuant to which we agreed to investigate the use of GSK’s proprietary AS01 adjuvant in our ongoing Phase I/IIa study of VBI-1901. As a result of the Collaboration Agreement, we added a second study arm to Part B of the study and announced enrollment of patients in the AS01B arm in March 2020, as described in “Part I - Item I - Business - eVLP Platform - VBI-1901: Cancer Vaccine Immunotherapeutic Candidate”.
Collaboration Agreement with the National Research Council of Canada (“NRC”)
On March 31, 2020, we announced a collaboration with the NRC, Canada’s largest federal research and development organization, to develop a coronavirus vaccine candidate. The collaboration combines VBI’s viral vaccine expertise, eVLP technology platform, and coronavirus antigens with the NRC’s uniquely designed SARS-CoV-2 antigens and assay development capabilities to select the most immunogenic vaccine candidate for further development.
On December 21, 2020, we signed an amendment to the collaboration agreement with the NRC to broaden the scope of collaboration to include certain pre-clinical evaluations, bioprocess optimization, technology transfer, and the performance of additional scale up work.
On July 8, 2021, we signed a second amendment to the collaboration agreement with the NRC to broaden the scope of the collaboration to include developing a vaccine against the Beta variant of SARS-CoV-2.
On August 27, 2021, we signed a third amendment to the collaboration agreement with the NRC to 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 for our vaccine candidate against the Beta variant of SARS-CoV-2 to include additional animal studies and PRNT analysis.
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. The expiration date of the collaboration agreement, as amended, is October 31, 2022.
Partnership with the Coalition for Epidemic Preparedness Innovations (“CEPI”)
On March 9, 2021, we announced a partnership with CEPI (“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.
Contribution Agreement with the Government of Canada
On July 3, 2020, we and the NRC as represented by its IRAP signed a contribution agreement whereby the NRC agreed to contribute up to CAD $1 million for the transfer and scale-up of the technical production process for our prophylactic coronavirus vaccine program.
On August 5, 2020, we announced that VBI Cda had been awarded up to a CAD $56 million contribution from the Strategic Innovation Fund (“SIF”), established by the Government of Canada, to support our coronavirus vaccine development program through Phase II clinical studies (the “Project”). This award is governed by the terms of a Contribution Agreement (the “Contribution Agreement”), dated September 16, 2020, with Her Majesty The Queen in Right of Canada, as represented by the Minister of Industry, pursuant to which our subsidiary, Variation Biotechnologies Inc., is responsible for development of a novel, broadly reactive coronavirus vaccine against COVID-19, SARS, and MERS, and/or a monovalent vaccine targeting only COVID-19 through Phase II studies. We agreed to complete such project, to be conducted exclusively in Canada except as permitted otherwise under certain circumstances, in or before the first quarter of 2022 (“Project Completion Date”), however discussions are underway to extend the term.
Pursuant to the Contribution Agreement, the Minister will contribute an amount not exceeding the lesser of (i) 75% of VBI Cda’s costs incurred in respect of the Project, subject to certain eligibility limitations as set forth in the Contribution Agreement and (ii) CAD $55,976. In consideration of such contribution, we agreed to guarantee the complete performance and fulfillment of VBI Cda’s obligations under the Contribution Agreement. In the event VBI Cda fails to perform or otherwise satisfy any of its obligations related to the Contribution Agreement, we will become a primary obligor under the Contribution Agreement.
For the term of the Contribution Agreement, VBI Cda must have exclusive ownership of all intellectual property developed in connection with the Project (the “Project Intellectual Property”). Pursuant to the Contribution Agreement, we are required to obtain a consent of the Minister, not to be unreasonably withheld, prior to granting any right or license to any of the Project Intellectual Property and certain other intellectual properties that is required for the carrying out of the Project (the “Background Intellectual Property,”); subject to certain exceptions set forth in the Contribution Agreement. Furthermore, if we are unable to provide a sufficient Canadian-sourced supply of the COVID-19 vaccine, the Minister may require us to grant a license on commercially reasonable terms to use the Project Intellectual Property and the Background Intellectual Property, but only to the extent necessary to ensure such supply.
Under the terms of the Contribution Agreement, we agreed to obtain the Minister’s written consent prior to (i) making significant changes in the scope, objectives, outcomes or benefits of the Project, (ii) dispose of any assets, which were, in whole or in part, funded by the Minister under the Agreement, and (iii) effecting a Change in Control (as defined in the Contribution Agreement). In addition, we will provide a written notice to the Minister of any acquisition of a business, the sale of a business or a merger or amalgamation.
In an event of default, subject to a rectification period available in certain circumstances, among other things, the Minister may (i) suspend or terminate its contribution to the Project and (ii) require repayment of all or part of the contribution paid by the Minster, together with interest from the day of demand at the interest rate set forth in the Contribution Agreement.
The Contribution Agreement will terminate no earlier than five years following the Project Completion Date unless terminated earlier in accordance with the terms of the Contribution Agreement. The Contribution Agreement also contains confidentiality and indemnification obligations of the parties.
In connection with execution of the Contribution Agreement, we obtained a consent of K2 HealthVentures LLC pursuant to the Loan Agreement defined below. Pursuant to such consent, certain events of default that result in contributions made under the Contribution Agreement in excess of $500, becoming due and payable could result in an event of default under the Loan Agreement.
Ferring and SciGen License Agreements
Our 3-antigen HBV vaccines is the subject of a license agreement between Savient Pharmaceuticals Inc. and SciGen Ltd dated June 2004, as subsequently amended (the “Ferring License Agreement”). 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 Pharma LLP and SciGen Ltd., dated February 14, 2012 (the “SciGen Assignment Agreement”), we are required to pay royalties to SciGen Ltd. equal to 5% of net sales (as defined in the Ferring License Agreement) of Product. Under the Ferring License Agreement and the SciGen Assignment Agreement, we originally were to pay royalties on a country-by-country basis until the date 10 years after the date of commencement of the first royalty year in respect of such country. In April 2019, we exercised our option to extend the Ferring License Agreement in respect of all the countries that still make up the territory for an additional 7 years by making a one-time payment to Ferring of $100. Royalties under the Ferring License Agreement and SciGen Assignment Agreement will continue to be payable for the duration of the extended license periods.
Royalty payments under the Ferring License Agreement of $18 and $20, were recorded in cost of revenues for the year ended December 31, 2021 and 2020, respectively.
Royalty payments under the SciGen Assignment Agreement of $13 and $14 were recorded in cost of revenues for the year ended December 31, 2021 and 2020, respectively.
In addition, we are committed to pay 30% of any and all non-royalty consideration, in any form, received by us from sub-licensees (other than consideration based on net sales for which a royalty is due under the Ferring License Agreement), provided that the payment of 30% shall not apply to a grant of rights in or relating to: (i) the Territory (as such term was defined in the Ferring License Agreement prior to an amendment dated January 24, 2005); or (ii) the Berna Territory (as defined in the Ferring License Agreement).
eVLP Technology Purchase Agreement
We are engaged in the inbound licensing of key intellectual property. We identified the need for a vaccine antigen discovery and design platform and, through that certain sale and purchase agreement entered into on July 18, 2011 (the “Sale and Purchase Agreement”) among VBI Cda and ePixis SA (“ePixis”) and the shareholders of ePixis (collectively, the “Sellers”), acquired 100% of the outstanding shares of ePixis in order to obtain access to its exclusive rights to key intellectual property covering its eVLP vaccine platform (the “Technology”), including patents (the “Acquired Patents”) covering the Technology. We paid a purchase price of €400 (approximately $450) for the ePixis shares and approximately $75 in related transaction costs. VBI Cda also agreed to make certain contingent payments to the Sellers as follows:
● Upon the earlier to occur of (i) first approval by the FDA of a new drug application (an “NDA”) permitting us or any sublicensee to market and sell any pharmaceutical product or candidate pharmaceutical product that contains or can express an eVLP (a “eVLP Product”) in the United States or (ii) first approval by the EMA of a Marketing Authorization Application or equivalent submission permitting us or our sublicensees to market and sell a eVLP Product candidate in one or more countries in the EU, we must pay to the Sellers €1,000, or, if there are no longer any issued and valid claims of the Acquired Patents in effect at the date such event occurs, €500.
If an eVLP Product is commercialized, we will be required to pay the Sellers the following:
● On the date that Cumulative Net Sales (as defined in the Sale and Purchase Agreement), of all eVLP Products equals or exceeds €25,000, we must pay to the Sellers €1,500, or, if there are no longer any issued and valid claims of the Acquired Patents in effect at the date such event occurs, €750; and
● On the Date that Cumulative Net Sales of all eVLP Products equals or exceeds €50,000 in the aggregate, we must pay to the Sellers €2,000 or, if there are no longer any issued and valid claims of the Acquired Patents in effect at the date such event occurs, €1,000.
If any eVLP Product is commercialized by one or more sublicensees, we have agreed to make the following payments to the Sellers:
● On the date that Cumulative Net Sales by us or any sublicensees of the eVLP Products equal or exceed €25,000 in the aggregate, we must pay to the Sellers €750, or, if there are no longer any issued and valid claims of the Acquired Patents in effect at the date such event occurs, €375;
● On the date that Cumulative Net Sales made by us or any sublicensees of the eVLP Products equal or exceed €50,000 in the aggregate, we must pay to the Sellers €750, or, if there are no longer any issued and valid claims of the Acquired Patents in effect at the date such event occurs, €375;
● On the date that Cumulative Net Sales made by us or any sublicensees of the eVLP Products equal or exceed €75,000 in the aggregate, we must pay to the Sellers €1,000, or, if there are no longer any issued and valid claims of the Acquired Patents in effect at the date such event occurs, €500; and
● On the date that Cumulative Net Sales made by us or any sublicensees of the eVLP Products equal or exceed €100,000 in the aggregate, we must pay to the Sellers €1,000, or, if there are no longer any issued and valid claims of the Acquired Patents in effect at the date such event occurs, €500.
Included in the eVLP Acquired Patents were patents (the “UPMC Patents”) co-owned by L’Universite Pierre et Marie Curie, now Sorbonne Université (“UPMC”), and the Institut National de la Santé et de la Recherche Médicale (“INSERM”), both in Paris, France. In July 2006, ePixis entered into a license agreement (the “ePixis License Agreement”) with UPMC, INSERM, and L’école Normale Supérieure de Lyon (collectively the “Licensor”) pursuant to which the Licensor granted to ePixis an exclusive license (with the right to sublicense with written consent from UPMC) to exploit the UPMC Patents for the purpose of developing, promoting and marketing products within the United States, Japan, Canada, and Europe until the expiry of the last of the UPMC Patents, including any supplementary protection certificates. Pursuant to the ePixis License Agreement, ePixis was to pay certain fees to the Licensor based on net sales (as defined in the ePixis License Agreement) of products developed from the UPMC Patents, sublicensing income based on net sales (“Sublicensing Payments”) and one-time payments (“Lump Sum Payments”) for each product developed from the UPMC Patents. ePixis also agreed to reimburse UPMC for fees and costs related to filing and maintaining the patent applications.
On July 12, 2011, the parties to the ePixis License Agreement entered into the first amendment to the ePixis License Agreement (the “ePixis Amendment”). The ePixis Amendment authorized the transfer of the ePixis License Agreement to VBI Cda and laid out new financial terms and conditions for the rights granted under the ePixis License Agreement.
The ePixis Amendment provides that the fees to be paid to the Licensor by ePixis on net sales of eVLP Products based on the UPMC Patents will be 1.75% of net sales for annual sales between €0 and €50,000, 1% of net sales for annual sales between €50,000 and €100,000, and 0.75% of net sales for annual sales in excess of €100,000. Pursuant to the ePixis Amendment, Lump Sum Payments shall be made as follows:
● €50 when the results from pre-clinical studies are sufficient to allow a product to enter a regulatory filing similar to an IND or a similar entity in a country other than the United States; this milestone was met and paid during the year ended December 31, 2016 for the CMV candidate and during the year ended December 31, 2018 for the GBM candidate. During the year ended December 31, 2020, the milestone was met and was paid during the year ended December 31, 2021 for our prophylactic coronavirus vaccine program;
● €150 when the results from pre-clinical studies are sufficient to allow a product into a clinical phase, including Phase I-II clinical studies; this milestone was met and paid during the year ended December 31, 2016 for the CMV candidate; during the year ended December 31, 2018 for the GBM candidate; and during the year ended December 31, 2021 for our prophylactic coronavirus vaccine program;
● €250 when a product enters Phase II clinical studies, an event that is defined by the enrollment of the first patient;
● €500 when a product enters Phase III clinical studies; and
● €1,000 when a product is first marketed.
UPMC is also a co-owner of the patent family covering our VBI-1501 CMV vaccine and we are currently negotiating extension of our existing license to cover this patent family.
Fees on income earned from sublicenses under the ePixis Amendment were revised as follows: 25% of any amounts received by ePixis for the sublicense if the sublicense is entered into prior to the start of Phase I clinical studies; 10% of any amounts received by ePixis if the sublicense is entered into during Phase I clinical studies and prior to the start of Phase II clinical studies; 7% of any amounts received by ePixis if the sublicense is entered into during Phase II clinical studies and prior to the start of Phase III clinical studies, and 5% of any amounts received by ePixis if the sublicense is entered into after the start of Phase III clinical studies. There was no change to the requirement that ePixis reimburse UPMC for fees and costs related to filing and maintaining the patent applications and patents.
The parties may terminate the ePixis License Agreement, as amended, by mutual agreement. There is also a cancellation right that may be exercised in the event of breach. UPMC may terminate the ePixis License Agreement if we, among other things, declare bankruptcy; do not put forth reasonable effort or are unable to develop and market the products, and, in particular, if we suspend the development of the products for more than six months; our inability to make the payments required by the ePixis License Agreement; lack of sales of a product, or lack of a signed sub-license agreement within one year from the date of acquiring AMM (Autorisation de mise sur le marché - Regulation of Therapeutic Goods) authorization, or the necessary equivalent authorization for the use of the products; and lack of sales of a product for more than two years after the initial marketing has taken place. During the year-ended December 31, 2016, VBI Cda paid UPMC €200 in milestone payments related to CMV Phase I clinical trial approval and start. During the year ended December 31, 2018, VBI Cda paid UPMC €200, in milestone payments related to the GBM Phase I/IIa clinical trial approval and start. During the year ended December 31, 2021, VBI Cda paid UPMC €200 in milestone payments related to our prophylactic coronavirus vaccine program clinical trial approval and start.
Description of Operations
We are headquartered in Cambridge, Massachusetts, with our manufacturing facility in Rehovot, Israel and our research facility in Ottawa, Ontario, Canada.
The Cambridge headquarters allows us to leverage our location in a biotechnology hub, and provides us with access to experienced consultants and executive level talent.
In Rehovot, Israel, we operate a proprietary, GMP-certified, mammalian cell-derived vaccine manufacturing facility, which we use to manufacture our 3-antigen HBV vaccine, as well as clinical study supply of VBI-2601 (BRII-179). The facility was built in December 2006 and most recently received GMP certification renewal by the IMoH on February 6, 2022. It has also received IMoH authorization to release vaccine batches to export markets. In 2013, the EU entered into an agreement with Israel regarding conformity assessment and acceptance of industrial products. This agreement recognizes Israel’s industrial standards as being equivalent to EU standards. It covers products for human and veterinary use (medicinal products, active pharmaceutical ingredients and excipients) and procedures related to GMP. The agreement means that Israel and the EU recognize each other’s GMP inspection conclusions, manufacturing and import authorizations and certification of conformity of batches. In 2021 our facility passed a FDA Remote Interactive Evaluation as part of the Biologics License Application (“BLA”) application process whereby PreHevbrio was approved for use in the United States.
The Canadian research site benefits from its location in Canada’s National Capital Region, providing us with access to world-class research facilities. VBI Cda’s active research collaboration with the Canadian federal government’s NRC provides its staff with on-site access to the NRC’s animal facility for greater control over the testing of our pipeline candidates. NRC staff manages the general animal husbandry and maintenance requirements for VBI Cda’s animal research activities.
The three sites collaborate efficiently through the use of a unified information technology infrastructure and web-based video-conferencing services.
Competitors
Our pipeline candidates face, and will continue to face, intense competition from large pharmaceutical companies, specialty pharmaceutical and biotechnology companies as well as academic and research institutions. We compete in an industry that is characterized by: rapid technological change; evolving industry standards; emerging competition; and new product introductions. Competitors have existing products and technologies that will compete with our pipeline candidates and technologies and may develop and commercialize additional products and technologies that will compete with our pipeline candidates and technologies. Because several competing companies and institutions may have greater financial resources than us, they may be able to: provide broader services and product lines; make greater investments in research and development (“R&D”); and carry-on larger R&D initiatives. Competitors may also have greater development capabilities than we do and have substantially greater experience in undertaking nonclinical and clinical testing of products, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products. They may also have greater name recognition and better access to customers.
We face general market competition from several subsectors of the vaccine development field, including: large, multinational pharmaceutical companies including Sanofi S.A. (“Sanofi”), GSK, Merck, Janssen Pharmaceutical, Inc (“Janssen”), Mitsubishi Tanabe Pharma Corporation, Takeda Pharmaceutical Company Limited and Pfizer, Inc. (“Pfizer”); large and mid-size pharmaceutical companies and emerging biotechnology companies including Dynavax, Novavax Inc., Moderna, Inc., BioNTech SE, and Hookipa Biotech AG; and academic and not-for-profit vaccine researchers and developers including the National Institutes of Health. The industry is typified by extensive collaboration, licensing, and merger and acquisition activity despite the intense competition.
In the prophylactic HBV vaccine space, we have several key competitors currently commercializing single-antigen HBV vaccines, including: GSK, the manufacturer of Engerix-B and Twinrix, Merck, the manufacturer of Recombivax HB, and Dynavax, the manufacturer of Heplisav-B.
Within the therapeutic HBV space, we face both competition from and potential collaboration with other developers of innovative HBV therapeutics designed to achieve a functional cure in combination with other therapeutics. Key large pharmaceutical companies in the space include: GSK, Janssen, Gilead Sciences, Inc, and F. Hoffmann-La Roche Ltd (“Roche”). Additionally, there are a number of mid-size companies developing alternative approaches to treat HBV, including: VIR, Arbutus Biopharma Corp, Dicerna Pharmaceuticals Inc, and Aligos Therapeutics Inc. It is not yet known which modes of action, or combinations thereof, will lead to a HBV functional cure.
Given the significant unmet medical need for GBM, there are numerous competitors seeking to develop new immunotherapies to treat GBM. Among these, Immunomic Therapeutics Inc (“Immunomic”), Immatics Biotechnologies GmBH, Stemline Therapeutics Inc., Mimivax LLC, and Inovio Pharmaceuticals Inc are developing vaccines that are also currently completing clinical studies. Immunomic’s approach also targets CMV antigens associated with GBM using a dendritic cell vaccine. Additional cell-based therapies and oncolytic viruses include those under clinical study by DNAtrix Inc, Transgene SA, and Ziopharm Oncology Inc.
Within the COVID vaccine space, over one hundred vaccine candidates against SARS-CoV-2 are under development; two have obtained FDA approval, from Pfizer, Inc/BioNTech SE and Moderna, Inc.; and one additional vaccine from Janssen was granted authorization for emergency use by the FDA. Additional emergency use authorizations and approvals are anticipated in 2022 and beyond. Other key companies in the space with vaccines approved for use by the WHO and/or other regulatory agencies include, Novavax, Inc., Oxford/AstraZeneca PLC, Bharat Biotech International Limited, Medicago Inc, Sinopharm, and Sinovac Biotech Ltd. Dozens of additional companies and institutions are running clinical studies, and we expect the COVID space to evolve rapidly over the next year.
Within the CMV vaccine space, we have several key competitors, some of whom are further advanced with their CMV vaccine development. Among these, Moderna’s CMV vaccine is in Phase III, and Hookipa Biotech AG CMV vaccine is in Phase II.
Suppliers and Contractors
Suppliers
We rely on a single source for our supply of vials and certain raw materials required for the manufacturing of our 3-antigen HBV vaccine. We have supply agreements with these vendors intended to assure quality and flow of materials. Alternative sources from which we can obtain our supply of these materials is under assessment. We may not be able to find alternative suppliers in a timely manner that would provide supplies of these materials at acceptable quantities and prices, if at all. Additionally, critical supplies and reagents are also required by our contractors for manufacturing and release testing of our eVLP-based pipeline candidates. Any interruption in the supply of these materials would disrupt our ability to manufacture our 3-antigen HBV vaccine and our pipeline candidates and could have a material adverse effect on our business.
Contractors
We enter into contracts in the normal course of business with contract research organizations (“CROs”) for clinical trials and CDMOs for manufacturing of our eVLP vaccine candidates. We also enter into contracts in the normal course of operations with vendors for research studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice.
We engage CRO’s to conduct our clinical programs including the ongoing GBM Phase I/IIa clinical program and our prophylactic coronavirus vaccine program. Our reliance on these CRO’s reduces our control over these activities and involves certain risks. See “Risk Factors” on [page 21] for more information regarding the risks associated with our reliance on CROs.
We engage CDMOs to manufacture our eVLP vaccine candidates and these CDMOs are dependent on sourcing raw materials from third party suppliers. Our reliance on these CDMOs reduces our control over these activities and involves certain risks. See “Risk Factors” on [page 21] for more information regarding the risks associated with our reliance on CDMOs.
We rely on a number of contractors to provide services to characterize and release our 3-antigen HBV vaccine. While alternative contractors exist for these services, we may not be able to transition to alternative contractors in a manner that does not disrupt the normal course of manufacturing operations and the supply of our 3-antigen HBV vaccine.
Our novel vaccine development efforts depend on a number of key suppliers to continue our research operations. We have identified the following parties as key suppliers of reagents, technology, or expertise which impact our development plans with our eVLP pipeline candidates:
● UPMC is the owner of the eVLP vaccine platform intellectual property portfolio to which we have an exclusive license. Under the terms of the ePixis License Agreement, as amended, we are required to pay royalties for successful products developed using the intellectual property for as long as patent claims cover the period in a given jurisdiction. This patent portfolio has claims that are expected to remain in force until 2022 in the United States, after which time we are no longer obligated to compensate UPMC for development of vaccines based on the UPMC intellectual property portfolio. After that time, the remaining patent protection of the CMV vaccine candidate will be based on patents and patent applications co-owned with UPMC which, if granted, would provide patent protection extending until 2032. We are currently negotiating an agreement with UPMC to cover the CMV patents and patent applications. There can be no assurance that any pending patent applications will be granted or, if granted, will be enforceable, and the claims in pending patent applications may be amended to reduce the scope of patent claims.
● We have collaborated with NRC on various vaccine projects since 2004 and have a long history of successful partnerships including several NRC-administered industrial research grants. The NRC developed a proprietary cell line (HEK-293-NRC) that we are using for production of our eVLP-based vaccine candidates. VBI Cda and the NRC have signed a research agreement that provides VBI Cda with access to NRC facilities and expertise for the advancement of our vaccine candidate programs. Supplementary to such research agreement, we negotiated terms for a non-exclusive license to the HEK-293-NRC cell line. Under these terms, we were required to pay success-based milestone payments until the patents on the cell line expired in November of 2018. We are collaborating with NRC to develop a coronavirus vaccine candidate. The collaboration combines our viral vaccine expertise, eVLP technology platform, and coronavirus antigens with the NRC’s uniquely designed SARS-CoV-2 antigens and assay development capabilities to select the most immunogenic vaccine candidate for further development. The scope of collaboration includes certain pre-clinical evaluations, bioprocess optimization, technology transfer, and the performance of additional scale up work.
● Key Reagent Suppliers: Characterization and release assays for our eVLP-based vaccines require specialized reagents. Several key reagents including reference proteins and growth media are provided by third parties and can impact development timelines. We have secured sufficient quantities of third-party reference proteins and growth media for ongoing and planned clinical studies. Supply of these key reagents remains a risk. See “Risk Factors” on [page 21] for more information regarding the risks associated with our reliance on key reagents.
● We, through our wholly-owned subsidiaries, depend on subcontractor arrangements to facilitate the completion of our research programs. Catalent Biologics, previously Paragon Bioservices, has manufactured clinical batches of our CMV vaccine candidate and our GBM immunotherapeutic vaccine candidate pursuant to the terms of a GMP-Manufacturing Services Agreement dated September 26, 2014. Resilience Biotechnologies, previously Therapure Biopharma Inc., manufactures clinical batches of our prophylactic coronavirus vaccine program and our GBM immunotherapeutic vaccine candidate pursuant to the terms of a Master Service and Supply Agreement dated November 10, 2020. The Company continues to explore alternative sources of product supply.
Employees
As of December 31, 2021, we had a total of 149 full-time and 6 part-time employees. The manufacturing site in Israel had 98 full-time employees and 2 part-time employees and the Ottawa research site employed 37 full-time and 4 part-time employees, as of December 31, 2021. The remaining 14 full-time employees worked out of our headquarters in Cambridge, MA. None of our employees are represented by unions. Our management considers its relationship with our employees to be good.
Facilities and Offices
Our registered office is located at Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8 with our headquarters located at 160 Second Street, Floor 3, Cambridge, MA 02142. Our manufacturing operations are located in Rehovot, Israel and our primary research facility is located in Ottawa, Ontario, Canada, refer to “Part I - Item 2. Properties.”
We rent office, manufacturing and research facility space under various operating leases, and we made rent payments of $1,463 during the fiscal year ended December 31, 2021.
We believe that our office, manufacturing and research facilities are suitable and adequate for our current operations but will consider term extensions or expansion of leased space, depending on market conditions and needs.
Research and Development
We invest heavily in R&D. R&D expenses were $19.6 million and $14.9 million for the years ended December 31, 2021 and 2020, respectively. All R&D was funded by equity financings, term loan financings, collaboration agreements, funding agreements or government grants and contributions. Our most significant R&D expenses to date have been related to the development of our 3-antigen HBV vaccine, followed by the development of our GBM vaccine immunotherapeutic candidate, our prophylactic coronavirus vaccine candidates, our CMV candidate, and the related eVLP platform. Although PreHevbrio is now approved by the FDA, our R&D expenses are expected to increase as we plan to continue to invest in and advance our lead pipeline candidates. In addition, we may bring other pipeline candidates through the clinical development stage and explore other vaccine opportunities and/or collaborations.
Intellectual Property
Patents
Our intellectual property portfolio includes 19 active patent families consisting of 198 fully owned or co-owned or exclusively licensed patents and patent applications. The highlights of our patent portfolio include:
● eVLP vaccine related intellectual property: we have an exclusive license to a patent family that protect the eVLP vaccine platform and derivatives thereof. Among these patents are rights that were originally developed at the UPMC (now Sorbonne Universite), for with which we hold a world-wide exclusive license to the base technology for the design of an eVLP.
● GBM vaccine immunotherapeutic candidate related intellectual property: we own or co-own three patent families which directly address our GBM vaccine immunotherapeutic candidate. These patents and applications include claims to compositions of matter and methods of treating GBM patients.
● CMV vaccine candidate related intellectual property: we own or co-own two patent families which directly address our CMV vaccine candidate. These patents and patent applications include a composition of matter patent describing the CMV vaccine candidate as well as a proprietary assay used to provide high-throughput screening of anti-CMV vaccine candidate responses.
● HBV Immunotherapeutic candidate related intellectual property: we own or co-own two patent families which directly address our HBV immunotherapeutic candidate. These patent applications include claims to compositions of matter and methods of treating HBV patients.
● Coronavirus vaccine candidate related intellectual property: we own or co-own two patent families which directly addresses our coronavirus vaccine candidates. These patent applications include claims to compositions of matter and methods of treating a subject at risk of COVID-19 infection.
● Lipid Particle Vaccines (“LPV”) vaccine related intellectual property: we own six patent families which protect our LPV technology platform. These patents include the method for manufacturing an LPV so as to confer thermostability, the proprietary ratios of excipients and antigens that are required to give rise to a thermostable formulation, and specific parameters required to confer thermostability to several distinct classes of vaccine antigens and biologic proteins.
We have a process of continuously monitoring the competitive landscape for infectious disease vaccines to better understand the research, business, and patent activities of our academic and industrial competitors. This process helps management to understand the competitive positioning of our pipeline. This knowledge has informed and shaped our patent portfolio, which is designed to protect our proprietary vaccine technologies and establish a defense against third-party infringement claims. Our licensed patent family relating to virus like particles (7 of which have now been issued) has a patent term that extends to 2022 in the United States and have expired in other countries in 2021. Our most recently filed patent family will have a patent term that extends to 2041.
Trade Secrets
Some of our know-how and technology is not patentable. To protect our proprietary rights in unpatentable intellectual property and trade secrets, we require employees, consultants, advisors and collaborators to enter into agreements regarding intellectual property and confidential information.
Trademarks
We use the PreHevbrio, PreHevbri, and Sci-B-Vac trademarks in connection with our 3-antigen HBV vaccine. We have registered these trademarks in 12 countries - 3 of them are still pending in the United States and 1 is still pending in the EU. The trademarks are renewable indefinitely, so long as we make the appropriate filings when required. We also have a registration for the LPV mark in Canada.
Governmental Regulation and Product Approval
Vaccine development is a highly regulated field. The manufacturing and marketing of our products and product candidates and our ongoing research and development activities are subject to extensive regulation by the FDA and comparable regulatory agencies of local, state, and foreign jurisdictions, such as Health Canada in Canada, the EMA in Europe, and the MHRA in the UK. New products must go through extensive pre-clinical and clinical development prior to product launch. This process can take more than ten years from candidate identification to licensure/marketing approval by health authorities worldwide. Despite efforts to harmonize regulatory requirements in different jurisdictions, there exists a divergence of legal and regulatory requirements in different countries and territories. Delays in regulatory approval to move from one stage of development to another can potentially cause us significant delays and can affect our market capitalization.
United States, Europe, and Canada Regulatory Agencies
Before any of our products can be marketed and sold in the United States, Europe, or Canada, they must receive approval from the relevant regulatory agencies, including the FDA, EMA, UK MHRA, and Health Canada. To receive regulatory approvals to market any drug or vaccine, including those we develop, the products in development must undergo rigorous pre-clinical testing and clinical studies that demonstrate the product’s safety and effectiveness for each indicated use. This extensive regulatory path includes process controls in development, testing, manufacturing, safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, sale, and distribution of the pharmaceutical products.
In general, before any new pharmaceutical or biological product can be marketed in the mentioned geographical areas, the process typically required by the regulatory agencies includes:
● Pre-clinical toxicology, laboratory, and animal tests;
● submission of an investigational new drug application (an “IND”) in the United States, which must be reviewed by the FDA before human clinical trials may begin; submission of a Scientific Advice application to EMA in Europe; or submission of a Clinical Trial Application to Health Canada;
● adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use;
● pre-approval inspection of manufacturing facilities and selected clinical investigator sites;
● submission of a NDA, or in the case of a biologics, a BLA, to the FDA, a MAA to the EMA, or a NDS to Health Canada; and
● FDA approval of an NDA, BLA, or a supplement (for subsequent indications or other modifications, including a change in location of the manufacturing facility), EMA approval of a MAA, or Health Canada approval of a NDS.
Pre-clinical Testing
In the United States, drug candidates are tested in animals until adequate proof of safety and efficacy is established. These pre-clinical studies generally evaluate the mechanism of action and pharmacology of the product and assess the potential safety and efficacy of the product. Tested compounds must be produced according to applicable cGMP requirements and pre-clinical safety tests must be conducted in compliance with FDA and international regulations regarding good laboratory practices. The results of the pre-clinical tests, together with manufacturing information and analytical data, are generally submitted to the FDA as part of an IND, which must become effective before human clinical trials may commence. The IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA requests an extension or raises concerns about the conduct of the clinical trials as outlined in the application. If the FDA has any concerns, the sponsor of the application and the FDA must resolve those concerns before clinical trials may begin. Regulatory authorities may require additional pre-clinical data before allowing the clinical studies to commence or proceed from one phase to another, and could demand that the studies be discontinued or suspended at any time if there are significant safety issues.
Clinical Trials
Clinical trials for new vaccine drug candidates are typically conducted in three sequential phases that may overlap. In Phase I, the initial introduction of the vaccine drug candidate into human volunteers, the emphasis is on testing for safety or adverse effects, dosage, tolerance, metabolism, distribution, excretion, and clinical pharmacology. Phase II involves studies in a limited patient population to determine the initial efficacy of the vaccine drug candidate for specific targeted indications, to determine dosage tolerance and optimal dosage, and to identify possible adverse side effects and safety risks. Once a vaccine compound shows evidence of effectiveness and is found to have an acceptable safety profile in Phase II evaluations, pivotal Phase III trials are undertaken to more fully evaluate clinical outcomes and to establish the overall risk/benefit profile of the drug, and to provide, if appropriate, an adequate basis for product labeling. During all clinical trials, physicians will monitor patients to determine the effectiveness of the drug candidate and to observe and report any reactions or safety risks that may result from use of the vaccine drug candidate. The FDA, the trial sites internal review board, and/or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk.
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications. The submission of a BLA requires payment of a substantial user fee to the FDA, and the sponsor of an approved BLA is also subject to annual product and establishment user fees. These fees are typically increased annually. A waiver of user fees may be obtained under certain limited circumstances. Under applicable laws and FDA regulations, each BLA submitted for FDA approval is usually given an internal administrative review within 60 days following submission of the BLA. If deemed complete, the FDA will “file” the BLA, thereby triggering substantive review of the application. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable. The FDA has established internal substantive review goals of six months for priority BLAs (for biologics addressing serious or life-threatening conditions for which there is an unmet medical need) and ten months for regular BLAs. However, these are agency proposed time frames, and so the FDA is not legally required to complete its review within these periods, and these performance goals may change over time. Moreover, the outcome of the review, even if generally favorable, is not typically an actual approval, but an “action letter” that describes additional work that must be done before the BLA can be approved. The FDA’s review of a BLA may involve review and recommendations by an independent FDA advisory committee. The FDA may deny approval of a BLA or BLA supplement if the applicable regulatory criteria are not satisfied, or the FDA may require additional clinical data and/or an additional pivotal Phase III clinical study. Even if such data are submitted, the FDA may ultimately decide the BLA does not satisfy its criteria for approval.
Data Review and Approval
Substantial financial resources are necessary to fund the research, clinical trials, and related activities necessary to satisfy FDA requirements or similar requirements of state, local, and foreign regulatory agencies. It normally takes many years to satisfy these various legal and regulatory requirements, assuming they are ever satisfied. Information generated in this process is susceptible to varying interpretations that could delay, limit, or prevent regulatory approval at any stage of the process. Accordingly, the actual time and expense required to bring a product to market may vary substantially. We cannot assure you that we will submit applications for required authorizations to manufacture and/or market potential products or that any such application will be reviewed and approved by the appropriate regulatory authorities in a timely manner, if at all. Success in early-stage clinical trials does not ensure success in later stage clinical trials. Even if a product candidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations and dosages, or have conditions placed on it that restrict the commercial applications, advertising, promotion or distribution of these products.
Once issued, the FDA may withdraw product approval if ongoing regulatory standards are not met or if safety problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products which have been commercialized. The FDA also has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs. The FDA may also request additional clinical trials after a product is approved. These so-called Phase IV studies may be made a condition to be satisfied after a drug receives approval. The results of Phase IV studies can confirm the effectiveness of a product candidate and can provide important safety information via the FDA’s voluntary adverse drug reaction reporting system. Any products manufactured or distributed by us pursuant to any FDA approvals would be subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the drug. Drug and biologics manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. We cannot be certain that we or our present or future manufacturers or suppliers will be able to comply with the cGMP regulations and other FDA regulatory requirements. If our present or future manufacturers or suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, require us to recall a product from distribution, withdraw approval of the NDA for that drug, or revoke or suspend a biologics license. Furthermore, even after regulatory approval is obtained, later discovery of previously unknown negative effects of a product may result in restrictions on the product or even its complete withdrawal from the market.
The FDA closely regulates the marketing and promotion of drugs and biologics. Approval is typically subject to post-marketing surveillance and other record keeping and reporting obligations, and involves ongoing requirements such as post-marketing annual reports and labeling updates. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and/or criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturers’ communications on the subject of such off-label use.
Post-Approval Requirements
Any products for which we have received, or may, in the future, receive FDA approval are subject to continuing regulation by the FDA, including, among other things, recordkeeping requirements, reporting of adverse experiences, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, restrictions on promoting products for uses or in patient populations that are not described in the product’s approved uses (known as “off-label” use), limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities involving the Internet. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. If there are any modifications to the product, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new BLA or a supplement, which may require the applicant to develop additional data or conduct additional pre-clinical studies and clinical trials. Further, if there are any modifications to the product, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new BLA or a BLA supplement, which may require the applicant to develop additional data or conduct additional pre-clinical studies and clinical trials. The FDA may also place other conditions on approvals including the requirement for a Risk Evaluation and Mitigation Strategies (or “REMS”) to assure the safe use of the product, which may require substantial commitment of resources post-approval to ensure compliance. A REMS could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.
In addition, quality control and manufacturing procedures must continue to conform to applicable manufacturing requirements after approval to ensure the quality and long-term stability of commercial products. We expect to rely on third parties for the production of clinical and commercial quantities of our products in accordance with cGMP regulations. The cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports and returned or salvaged products. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products in accordance with cGMP regulations. These manufacturers must comply with cGMP regulations that require, among other things, quality control and quality assurance, the maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities involved in the manufacture and distribution of approved products are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. Future inspections by the FDA and other regulatory agencies may identify compliance issues at the facilities of our CMOs that may disrupt production or distribution or require substantial resources to correct. In addition, the discovery of conditions that violate these rules, including failure to conform to cGMP regulations, could result in enforcement actions, and the discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved BLA, including, among other things, voluntary recall and regulatory sanctions as described below.
Once an approval or clearance of a drug is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
● restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
● fines, warning letters or other enforcement-related letters or clinical holds on post-approval clinical trials;
● refusal of the FDA to approve pending BLAs or supplements to approved BLAs, or suspension or revocation of product approvals;
● product seizure or detention, or refusal to permit the import or export of products;
● injunctions or the imposition of civil or criminal penalties; and
● consent decrees, corporate integrity agreements, debarment, or exclusion from federal health care programs; or mandated modification of promotional materials and labeling and the issuance of corrective information.
In addition, the Drug Supply Chain Security Act, or DSCSA, was enacted with the aim of building an electronic system to identify and trace certain prescription drugs distributed in the United States, including most biological products. The DSCSA mandates phased-in and resource-intensive obligations for pharmaceutical manufacturers, wholesale distributors, and dispensers over a 10-year period that is expected to culminate in November 2023. From time to time, new legislation and regulations may be implemented that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. It is impossible to predict whether further legislative or regulatory changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be.
Coverage, Pricing and Reimbursement
The commercial success of any biopharmaceutical products approved by the FDA depends in significant part on the availability of third-party coverage and adequate reimbursement for the products.
In the United States, third-party payors include government healthcare programs, such as Medicare and Medicaid, private health insurers, managed care plans, and other organizations. These third-party payors are increasingly challenging the price and examining the cost-effectiveness of medical products and services. Significant uncertainty exists regarding coverage and reimbursement for newly approved healthcare products. Coverage does not ensure adequate reimbursement. It is time-consuming and expensive to seek coverage and reimbursement from third-party payors. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication or utilize other mechanisms to manage utilization (such as requiring prior authorization for coverage for a product for use in a particular patient). Limits on coverage may impact demand for our products. Even if coverage is obtained, third-party reimbursement may not be adequate to allow us to sell our products on a competitive and profitable basis. As result, we may not be sufficient to maintain price levels high enough to realize an appropriate return on investment in product development.
Biologics Price Competition and Innovation Act of 2009 (BPCIA)
Under the Federal Patient Protection and Affordable Care Act (the “Affordable Care Act”), enacted in 2010, and specifically, the Biologics Price Competition and Innovation Act of 2009 (BPCIA) included therein, there is an abbreviated path in the United States for regulatory approval of biosimilar versions of approved biological products. The Affordable Care Act provides a regulatory mechanism that enables FDA approval of biologic drugs that are similar to (but not exact copies of) innovative drugs on the basis of less extensive data than is required by a full BLA. Under this regulation, an application for approval of a biosimilar may not be filed until four years after marketing approval of the innovator product. Pioneer innovative biological products will receive 12 years of regulatory exclusivity, meaning that the FDA will not approve a biosimilar version until 12 years after the innovative biological product was first approved by the FDA.
Fast Track Approval
The Federal Food, Drug, and Cosmetic Act (“FDCA”), as amended, and the related FDA regulations provide certain mechanisms for the accelerated “Fast Track” approval of potential products intended to treat serious or life-threatening illnesses which have demonstrated the potential to address unmet medical needs. These procedures permit early consultation and commitment from the FDA regarding the pre-clinical and clinical studies necessary to gain marketing approval. Provisions of this regulatory framework also permit, in certain cases, BLAs to be approved on the basis of valid indirect measurements of benefit of product effectiveness, thus accelerating the normal approval process. In the future, certain potential products employing our technology might qualify for this accelerated regulatory procedure. Even if the FDA agrees that these potential products qualify for accelerated approval procedures, FDA may deny approval of our drugs or may require additional studies before approval. The FDA may also require us to perform post-approval, or Phase IV, studies as a condition of such early approval. In addition, the FDA may impose restrictions on distribution and/or promotion in connection with any accelerated approval, and may withdraw approval if post-approval studies do not confirm the intended clinical benefit or safety of the potential product.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs or biologics intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. If a product that has orphan drug designation subsequently receives FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that FDA may not approve any other applications to market the same drug for the same disease, except in very limited circumstances, for seven years. These very limited circumstances are (i) an inability to supply the drug in sufficient quantities or (ii) a situation in which a new formulation of the drug has shown superior safety or efficacy. This exclusivity, however, also could block the approval of our product for seven years if a competitor obtains earlier approval of the same drug for the same indication.
Foreign Regulation
In addition to regulations in the United States, we are and will continue to be subject to a variety of laws and regulations governing clinical trials, commercial sales, and distribution of our products in foreign countries. Whether or not we obtain FDA approval, we must separately obtain approval for clinical trials or a marketing authorization by the comparable regulatory authorities of those foreign countries before we may commence clinical trials or marketing of the product in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
Legal and compliance landscapes, as well as the policies of the FDA and foreign regulatory authorities may change and additional government regulations may be enacted which could prevent or delay regulatory approval of our products and could also increase the cost of regulatory compliance. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.
Under the applicable EU regulatory regime, we may submit marketing authorization applications (MAAs) either under a centralized or decentralized procedure (which also includes the mutual recognition procedure available for companies who already hold national licenses). The decentralized procedures provide for mutual recognition of national approval decisions. These authorizations provide marketing authorizations. The centralized procedure, which is available for medicines, inter alia, produced by biotechnology, intended to treat specific illnesses, or which are highly innovative, provides for the grant of a single marketing authorization that is valid for all EU member states (as well as in Northern Ireland and the EEA countries of Iceland, Liechtenstein, and Norway).
The procedure for obtaining marketing authorizations in the United Kingdom has been affected by Brexit, which took place on January 31, 2020. A transitional period was in place until December 31, 2020, during which time regulation of pharmaceuticals was still governed by EU law. As of January 1, 2021, the UK MHRA has implemented new procedures for MAAs. Among these new procedures is a Great Britain marketing authorization that relies on a decision taken by the European Commission (“EC”) in respect of a marketing authorization for the same product in the centralized procedure. This route - the EC decision reliance procedure (“ECDRP”) - is currently available to all authorizations approved in the centralized procedure.
Other Government Regulation
Our research and development activities use biological and hazardous materials that may be dangerous to human health and safety or the environment. We are subject to a variety of federal, provincial, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials and wastes resulting from these materials. We are also subject to regulation by the Occupational Safety and Health Administration and federal, provincial and state environmental protection agencies and to regulation under the Toxic Substances Control Act.
In addition, in the United States, we may be subject to various federal and state laws and regulations regarding fraud and abuse in the healthcare industry, as well as industry standards and guidance, such as the codes issued by the Pharmaceutical Research and Manufacturers of America (or “PhRMA Codes”), which some states reference or incorporate in their statutes and regulations. These laws, regulations, standards, and guidance may impact, among other things, our sales and marketing activities and our relationships with healthcare providers and patients. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. These federal laws include, by way of example, the following:
● The anti-kickback statute (Section 1128B(b) of the Social Security Act) which prohibits certain business practices and relationships that might affect the provision and cost of healthcare services reimbursable under Medicare, Medicaid and other federal healthcare programs, including the payment or receipt of remuneration for the referral of patients whose care will be paid by Medicare or other governmental programs;
● The physician self-referral prohibition (Ethics in Patient Referral Act of 1989, as amended, commonly referred to as the Stark Law, Section 1877 of the Social Security Act), which prohibits referrals by physicians of Medicare or Medicaid patients to providers of a broad range of designated healthcare services in which the physicians (or their immediate family members) have ownership interests or with which they have certain other financial arrangements;
● The anti-inducement law (Section 1128A(a)(5) of the Social Security Act), which prohibits providers from offering anything to a Medicare or Medicaid beneficiary to induce that beneficiary to use items or services covered by either program;
● The False Claims Act (31 U.S.C. § 3729 et seq.), which prohibits any person from knowingly presenting or causing to be presented false or fraudulent claims for payment to the federal government (including the Medicare and Medicaid programs); and
● The Civil Monetary Penalties Law (Section 1128A of the Social Security Act), which authorizes the United States Department of Health and Human Services to impose civil penalties administratively for fraudulent or abusive acts.
These laws also impose an affirmative duty on those receiving Medicare or Medicaid funding to ensure that they do not employ or contract with persons excluded from Medicare and other government programs. Due to the breadth of some of these laws, it is possible that some of our current or future practices might be challenged under one or more of these laws. In addition, there can be no assurance that we would not be required to alter one or more of our practices to comply with these laws. Evolving interpretations of current laws or the adoption of new federal or state laws or regulations could adversely affect the arrangements we may have with sales personnel, healthcare providers, and patients. Our risk of being found in violation of these laws is increased by the fact that some of these laws are open to a variety of interpretations. If our past or present operations, practices, or activities are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, imprisonment, damages, fines, disgorgement, contractual remedies, reputational harm, diminished profits, and future earnings, if any, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Available Information
Our Internet website can be found at www.vbivaccines.com. The information on, or that can be accessed through, our website is not part of this report. We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, we file periodic reports, proxy statements and other information with the SEC. You may access our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, free of charge at our website as soon as reasonably practicable after the material is electronically filed with, or furnished to, the SEC.

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ITEM 1A. RISK FACTORS
ITEM 1A: RISK FACTORS
We are subject to various risks that may materially harm our business, prospects, financial condition and results of operations. An investment in our common shares is speculative and involves a high degree of risk. In evaluating an investment in our common shares, you should carefully consider the risks described below, together with the other information included in this Form 10-K, including the consolidated financial statements and related notes.
The risks described below are not the only risks we face. If any of the events described in the following risk factors actually occurs, or if additional risks and uncertainties later materialize, that are not presently known to us or that we currently deem immaterial, then our business, prospects, results of operations and financial condition could be materially adversely affected. In that event, the trading price of our common shares could decline, and you may lose all or part of your investment in our shares. The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.
Summary of Risk Factors
Below is a summary of the principal factors that make an investment in our common shares speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC, before making an investment decision regarding our common shares.
● We have a history of operating losses, and we cannot guarantee that we can ever achieve sustained profitability;
● We will need additional financing to continue our operations. If we are unable to obtain additional financing on acceptable terms, we may have to curtail or cease our development plans and operations;
● Our success is dependent on achieving and sustaining commercial success of PreHevbrio in the U.S.;
● Our success is dependent on the successful clinical development, regulatory approval and commercialization of our pipeline candidates, which will require significant time and resources;
● We may not be able to secure sufficient supplies of materials, or the services of third parties, which we require to advance the development and commercialization of our products;
● We face intense competition and rapid technological change, which may make it more difficult to achieve significant market penetration. If we cannot compete successfully for market share against other drug companies, we may not achieve sufficient product revenues and our business will suffer;
● We may be unable to satisfy our contractual obligations or meet expected deadlines;
● We depend or may depend on third parties to conduct clinical trials, commercialize and/or manufacture our product candidates;
● We manufacture clinical and commercial supplies of our 3-antigen HBV vaccine and VBI-2601 at a single location. Any disruption in the operations of our manufacturing facility could adversely affect our business and results of operations;
● Our success depends on our ability to maintain the proprietary nature of our technology.
Risks Related to Development and Commercialization of Product and our Pipeline Programs
The ongoing coronavirus pandemic has caused interruptions or delays of our business plan and may have a significant adverse effect on our business.
In December 2019, a strain of coronavirus, SARS-CoV-2, was reported to have surfaced in Wuhan, China, and on March 12, 2020, the World Health Organization (“WHO”) declared COVID-19, disease caused by SARS-CoV-2, to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, many countries, including the United States, Canada, China, and Israel, have imposed unprecedented restrictions on travel, quarantines, and other public health safety measures. Such government-imposed precautionary measures may have been relaxed in certain countries or states, but there is no assurance that more strict measures will not be put in place again due to a resurgence in COVID-19 cases.
As a result of the COVID-19 pandemic, we continue to reduce exposure risk with fewer employees on site at both our manufacturing facility in Israel, where we manufacture our 3-antigen HBV vaccine and VBI-2601, and at our research and development laboratories in Ottawa, Canada. Our manufacturing facility in Israel and CDMOs that we engage to manufacture our eVLP vaccine candidates are dependent on sourcing raw materials from third party suppliers. The COVID-19 pandemic has impacted lead times and availability of many raw materials, which may adversely impact our ability to manufacture products in a timely manner. Further, restrictions on our ability to travel, stay-at-home orders and other similar restrictions on our business have limited our ability to support our operations.
We have four ongoing clinical studies being conducted, by us or our partners, at clinical sites worldwide: 1) the Phase II study of VBI-2601 (BRII-179) and BRII-835 (VIR-2218) at multiple study sites in Asia Pacific countries; 2) the Phase IIa/IIb study of VBI-2601 (BRII-179) at multiple study sites in Asian Pacific countries; 3) the Phase I/IIa study of VBI-1901 in the United States; and 4) the Phase Ib clinical study of VBI-2902 and VBI-2905 in Canada and Mexico. In addition to the active clinical studies, we have several planned clinical studies expected to begin in 2022, including a further clinical study with VBI-1901 in the United States, and the continued clinical evaluation of our coronavirus vaccine candidates, including VBI-2901 (VBI’s multivalent pan-coronavirus vaccine candidate) in Canada and potentially other countries. The enrollment of patients at some of the clinical sites in our studies has in the past been suspended, and may again be suspended in the future due to the COVID-19 pandemic, and enrollment of patients at other clinical sites may be suspended or delayed as hospitals and clinics where we are conducting or planning to conduct clinical trials may reallocate resources and limit access to or close clinical facilities due to the COVID-19 pandemic. Additionally, if our trial participants are unable to travel to or visit our clinical study sites as a result of quarantines or other restrictions resulting from the COVID-19 pandemic, we could experience higher drop-out rates or delays in our clinical studies. Government-imposed quarantines, shelter-in-place and similar restrictions may also require us to temporarily close our clinical sites, research laboratories, or manufacturing facility. Furthermore, if we determine that our trial participants may suffer from exposure to COVID-19 as a result of their participation in our clinical trials, we may voluntarily close certain clinical sites as a safety measure until we reasonably believe that the likelihood of exposure has subsided. As a result, our expected development timelines for VBI-2601 (BRII-179), VBI-1901, our coronavirus vaccine candidates, and possibly our regulatory timelines for our 3-antigen HBV vaccine, in countries other than Unites States, may be negatively impacted.
We cannot predict the ultimate impact of the COVID-19 pandemic as consequences of such an event are highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical studies, our research programs, the recoverability of our assets, and our manufacturing; however, the COVID-19 pandemic may continue to disrupt or delay our business operations, including with respect to efforts relating to potential business development transactions, and it could disrupt the marketplace which could have an adverse effect on our operations.
Moreover, the various precautionary measures taken by many governmental authorities around the world in order to limit the spread of the COVID-19 has had, and may continue to have, an adverse effect on the global markets and global economy generally, including on the availability and cost of employees, resources, materials, manufacturing and delivery efforts, and other aspects of the global economy. There have been business closures, supply chain disruptions and shipping delays, an increasingly competitive labor market in the U.S. and a substantial reduction in economic activity in countries that have had significant outbreaks of COVID-19, amongst others. Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on the global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to pre-COVID-19 pandemic levels. The COVID-19 pandemic could disrupt our business and operations, interrupt our sources of supply, hamper our ability to raise additional funds or sell our securities, and continue to slow down the global economy.
PreHevbrio is VBI’s first commercial product in the U.S. and we may not achieve and sustain commercial success in the U.S.
We received FDA approval for PreHevbrio in the U.S. in November 2021 and expect to commercially launch the vaccine in the first quarter of 2022. Successful commercialization of PreHevbrio in the U.S. will require significant resources, time, expertise, and experience. In preparation for the FDA approval, we have been working with Syneos Health on the pre-launch strategy and activity since 2019 and expanded the relationship in 2020 to build the leadership team and field teams dedicated to VBI, incorporating full-service commercialization solutions. Syneos was selected for their robust and innovative commercialization experience and deep vaccine expertise, including successful partnerships with leading vaccine manufacturers. As part of this partnership, we have established sales, marketing, market access, and medical (field and communication) capabilities. Because this is VBI’s first marketed product in the United States, despite substantial sales, marketing and market access experience in the vaccine and therapeutic fields, we may not be able to successfully commercialize PreHevbrio.
Successful commercialization of PreHevbrio will also require that we enter into contracts with third-party logistics companies, wholesales, distributors, group purchasing organizations, and other institutions and potential distribution and marketing partners, and that we successfully maintain those relationships and contracts. We may not complete, or complete in a timely manner, or maintain all of these critical contracts, which may result in us not achieving successful commercialization of PreHevbrio.
Additional factors that may affect our ability to successfully commercialize PreHevbrio include:
● Our ability and the ability of Syneos to recruit and retain employees with the right expertise and experience, at sufficient numbers;
● Our ability to access and develop relationships with key healthcare providers and public health agencies;
● Our ability to compete successfully as a new entrant in established distribution channels for vaccine products; and
● Our ability to maintain sufficient funding to cover the costs and expenses associated with building and operating an effective commercial organization.
Our pursuit of coronavirus vaccine candidates is ongoing, and we may be unable to produce a vaccine that successfully provides protection against the virus in a relevant manner, if at all.
In response to the COVID-19 pandemic, and in collaboration with the NRC, ISED, and CEPI, we have worked to advance the development of our VBI-2900 program coronavirus candidates, including VBI-2901, VBI-2902, and VBI-2905. Our development of the monovalent vaccine candidates VBI-2902 and VBI-2905 is in the early clinical stage and our development of the trivalent pan-coronavirus vaccines VBI-2901 is in the pre-clinical stage, and we may be unable to develop a vaccine that successfully and safely protects against the viruses in a timely manner, if at all. In addition, the SARS-CoV-2 virus has mutated as it has spread leading to several variants, including the Alpha, Beta, Gamma, Delta, and Omicron variants, and new variants may continue to emerge. Given the evolution of the virus and the current and potential emergence of new dominant variants, the vaccine candidates that we are developing could become irrelevant if they do not work as effectively as other vaccines against then dominant variants. Furthermore, even if we successfully develop a vaccine, we may encounter difficulties developing and scaling up manufacturing processes suitable for production of sufficient supply for our clinical trials or for commercialization in a cost-effective manner. Due to the number of COVID-19 vaccine candidates in clinical trials, we may also encounter difficulty locating clinical sites with capacity to conduct clinical trials, and therefore, we may experience delays in initiating or enrolling clinical trials of our vaccine candidate. We are also committing financial resources and personnel to the development of a coronavirus vaccine, which may cause delays in or otherwise negatively impact our other development programs, despite uncertainties surrounding the longevity and extent of coronavirus as a global health concern. Our business could be negatively impacted by our allocation of significant resources to a global health threat that is unpredictable and could rapidly dissipate or against which our vaccine, if developed, may not be partially or fully effective.
Given the global footprint and the widespread media attention on the COVID-19 pandemic, there are efforts by public and private entities to develop vaccines against COVID-19, including large, multinational pharmaceutical companies such as AstraZeneca, GSK, Johnson & Johnson, Moderna Inc., Pfizer, and Sanofi, with vaccine candidates that are currently approved, authorized for emergency use, or at more advanced stage of development than our coronavirus vaccine candidates. In December 2020, the FDA and other similar regulatory agencies began to issue emergency use authorizations for vaccines developed by certain of these large, multinational pharmaceutical companies, and in August 2021 and January 2022, the FDA approved the first and second coronavirus vaccines, respectively. It is possible that additional vaccines developed by such large, multinational pharmaceutical companies may receive further approvals and authorizations in the near term. Those other entities may develop COVID-19 vaccines that are more effective than any vaccine we may develop, may develop a COVID-19 vaccine that becomes the standard of care, may develop a COVID-19 vaccine at a lower cost or earlier than we are able to develop any COVID-19 vaccine, or may be more successful at commercializing a COVID-19 vaccine. Many of these other organizations are much larger than we are and have access to larger pools of capital, and as such, are able to fund and carry-on larger research and development initiatives. Such other entities may have greater development capabilities than we do and have substantially greater experience in undertaking nonclinical and clinical testing of vaccine candidates, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products. Our competitors may also have greater name recognition and better access to customers. In addition, based on the competitive landscape, additional COVID-19 vaccines or therapeutics will likely be approved to be marketed. These products could reduce the commercial opportunity for our coronavirus vaccine candidates and could have a material adverse effect on our business, financial condition, results of operations and future prospects. Moreover, if we experience delayed regulatory approvals or disputed clinical claims, we may not have a commercial or clinical advantage over competitors’ products. The success or failure of other entities, or perceived success or failure, may adversely impact our ability to obtain any future funding for our vaccine development efforts or for us to ultimately commercialize and market any vaccine candidate, if approved. In addition, we may not be able to compete effectively if our product candidates do not satisfy government procurement requirements with respect to biodefense products.
We rely on government and non-government organization grants or subsidies to contribute to our coronavirus vaccine development program. If we are unable to satisfy our contractual obligations or meet expected deadlines, the development of the coronavirus vaccine candidates may be extended, delayed, modified, or terminated and we may be required to repay all or part of the grants or subsidies.
On September 16, 2020, we signed the Contribution Agreement with Her Majesty the Queen in Right of Canada, as represented by Innovation, Science and Economic Development Canada (“ISED”) whereby ISED agreed to contribute up to CAD $56 million from the SIF to support the development of our coronavirus vaccine program, VBI-2900, though Phase II clinical studies (the “Project”). We agreed to complete such project, to be conducted exclusively in Canada except as permitted otherwise under certain circumstances, in or before the first quarter of 2022 (“Project Completion Date”), however discussions are underway to extend the term. In an event of default, subject to a rectification period available in certain circumstances, among other things, the Minister may (i) suspend or terminate its contribution to the Project, or (ii) require repayment of all or part of the contribution paid by the Minster, together with interest from the day of demand at the interest rate set forth in the Contribution Agreement. As a result, if we default on our obligations under the Contribution Agreement, we may not have sufficient funds available to continue the development of our coronavirus vaccine program, and we cannot be certain that we will be able to obtain additional capital to fund the program. In addition, we may be required to repay the grants made under the Contribution Agreement, which would harm our business, financial condition and results of operations.
Furthermore, in connection with execution of the Contribution Agreement, we obtained a consent of K2 HealthVentures LLC, as administrative agent for the lenders and a lender, pursuant to the Loan Agreement, dated May 22, 2020. Pursuant to such consent, certain events of default that result in contributions made under the Contribution Agreement in excess of $500 becoming due and payable could result in an event of default under the Loan Agreement.
On March 9, 2021, we signed the CEPI Funding Agreement with the CEPI whereby CEPI agreed to contribute up to $33 million to support the advancement of our eVLP vaccine candidates against SARS-CoV-2 including the advancement of VBI-2905 through Phase I clinical development. We agreed to use commercially reasonable efforts to fulfill our obligations, including achieving certain objectives and timelines within the agreed timeframe laid out in the CEPI Funding Agreement. If we are unable to achieve such objectives or timelines, or if CEPI determines that we are unable to meet our obligations under the CEPI Funding Agreement, subject to certain conditions, CEPI may choose not to provide additional tranches of funding, to provide less funding, or to terminate the CEPI Funding Agreement. If CEPI terminates the CEPI Funding Agreement, CEPI will not be required to make any further payments to us and we will be required to return any CEPI funds that are unspent, subject to certain limitations. If CEPI terminates the CEPI Funding Agreement or chooses not to provide additional tranches of funding, or to provide less funding than expected, this could have a material adverse impact on our business, results of operations, financial condition and prospects; in addition, our ability to advance VBI-2905 would require alternative funding, which could significantly slow down the product development and approval process, and jeopardize our ability to commence product sales and generate revenue.
Government involvement may limit the commercial success of our coronavirus vaccine candidates.
The coronavirus pandemic has been classified as a pandemic by public health authorities, and it is possible that one or more government entities may take actions that directly or indirectly have the effect of abrogating some of our rights or opportunities. In particular, the Government of Canada has announced that foreign investments into Canada will be subject to enhanced review under the Investment Canada Act, particularly foreign direct investments in Canadian businesses that are related to public health or involved in the supply of critical goods and services to Canadians or to the government. If we were to develop a coronavirus vaccine, the economic value of such a vaccine to us could be affected by these measures.
Various government entities, including the U.S., Israeli, and Canadian governments, are offering incentives, grants, and contracts to encourage additional investment by commercial organizations into preventative and therapeutic agents against coronavirus, which may have the effect of increasing the number of competitors and/or providing advantages to known competitors. Accordingly, there can be no assurance that we will be able to successfully establish a competitive market share, if any, for our coronavirus vaccine even if we succeed in developing one.
Furthermore, government grants and subsidies may limit our ability to develop and manufacture our coronavirus vaccine candidates in the most efficient way. For example, under the terms of the Contribution Agreement, we are required to conduct Phase II studies of our coronavirus vaccine program in Canada, unless permitted otherwise. As a result of such limitations, we may be unable to pursue the most efficient or profitable path in developing our coronavirus vaccine program.
If we are successful in producing a vaccine against COVID-19 or more broadly, coronaviruses, we may need to devote significant resources to its scale-up and development including for use by the Canadian or the U.S. government.
In the event that the pre-clinical and clinical trials for our coronavirus vaccine candidates are perceived to be successful, we may need to work toward the large-scale technical development, manufacturing scale-up and larger scale deployment of this potential vaccine through a variety of United States government mechanisms such as an Expanded Access Program or an Emergency Use Authorization program or Canadian government programs. In this case we may need to divert significant resources to this program, which would require diversion of resources from our other programs. In addition, since the path to licensure of any vaccine against coronavirus is accelerated, if use of the vaccine is mandated by the Canadian or the United States government, we may have a widely used vaccine in circulation in Canada, the United States or another country prior to our full validation of the overall long-term safety and efficacy profile of our vaccine platform and technology. Unexpected safety issues in these circumstances could lead to significant reputational damage for us and our technology platform going forward and other issues, including delays in our other programs, the need for re-design of our clinical trials and the need for significant additional financial resources. Also, under the Contribution Agreement, if we are unable to provide a sufficient Canadian-sourced supply of the COVID-19 vaccine, the Minster may require us to grant a license on commercially reasonable terms to use our intellectual property to the extent necessary to ensure such supply. This provision may inhibit us from pursuing more profitable means of manufacturing and commercializing our coronavirus vaccine candidates.
Because our product development efforts depend on new and rapidly evolving technologies, we cannot be certain that our efforts will be successful.
Our product development efforts depend on new, rapidly evolving technologies and on the marketability and profitability of our products. Commercialization of our vaccines could fail for a variety of reasons, and include the possibility that:
● Our 3-antigen HBV vaccine may not be approved for sale in the Europe or Canada;
● our coronavirus vaccine candidates may not be effective or may not be developed in a timely manner, if at all;
● our eVLP vaccine technologies, any or all of the products based on such technologies or our manufacturing process will be ineffective or unsafe, or otherwise fail to receive necessary regulatory clearances or achieve commercial viability;
● we or Brii Bio may be unable to successfully carry out the development and commercialization plans under the License Agreement, as amended;
● we may be unable to develop a scale-up method for our manufacturing protocols in a cost-effective manner;
● the products, if safe and effective, will be difficult to manufacture on a large-scale or may be uneconomical to market;
● our subcontracted third-party manufacturing facilities may fail to continue to pass regulatory inspections;
● proprietary rights of third parties will prevent us or our collaborators from exploiting technologies, and manufacturing or marketing products; and
● third-party competitors will gain greater market share due to superior products or marketing capabilities.
The EMA and similar foreign regulatory agencies may require additional information or clinical trial data for our 3-antigen HBV vaccine before granting regulatory approval, if regulatory approval is granted at all.
We submitted the MAA to the EMA in the fourth quarter of 2020 for our 3-antigen HBV vaccine. On February 25, 2022, we announced that the EMA’s Committee for Medicinal Products for Human Use (“CHMP”) adopted a positive opinion for VBI’s 3-antigen HBV vaccine for active immunization against infection caused by all known subtypes of HBV in adults, under the name PreHevbri [Hepatitis B vaccine (recombinant, adsorbed)]. However, at this time, PreHevbri is not approved in the EU. The European Commission (“EC”) will review the CHMP recommendation and a final decision on the Marketing Authorization Application (“MAA”) for PreHevbri in the EU is still pending. We also filed a NDS to Health Canada in the fourth quarter of 2021 for our 3-antigen HBV vaccine candidate. Our registration and commercial timelines for such vaccine candidate depend on further discussions with the respective foreign regulatory agencies. They could have requirements and requests for additional data, beyond what is included in the submissions, or completion of additional clinical trials, including a request to increase the size of the safety data set or changes to the manufacturing process or our manufacturing facility. Any such requirements or requests could:
● adversely affect our ability to timely and successfully commercialize or market our 3-antigen HBV vaccine in Europe, Canada, and other jurisdictions where our vaccine is not currently approved;
● result in significant additional costs;
● potentially diminish any competitive advantages for our 3-antigen HBV vaccine;
● potentially limit the markets for our 3-antigen HBV vaccine;
● adversely affect our ability to enter into collaborations or receive milestone payments or royalties from potential collaborators;
● cause us to abandon the further development of our 3-antigen HBV vaccine or certain of our pipeline candidates to comply with requests by the EMA, Health Canada, or similar foreign regulatory agencies in jurisdictions where it is not currently approved; or
● limit our ability to obtain additional financing on acceptable terms, if at all.
Pre-clinical and clinical trials will be lengthy and expensive. Delays in clinical trials are common for many reasons and any such delays could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product sales as currently contemplated.
As part of the regulatory process, we must conduct clinical trials for each vaccine candidate to demonstrate safety and efficacy to the satisfaction of the regulatory authorities, including the FDA for the United States, the EMA for the EU, the MHRA for UK, and Health Canada for Canada. Clinical trials are subject to current Good Clinical Practice regulations (“cGCP”). cGCPs are rigorous practices that are incorporated into the FDA’s clinical trial regulatory requirements and are expensive and time-consuming to design and implement. We may experience delays in clinical trials for any of our pipeline candidates, and the projected timelines for continued development of the technologies and related pipeline candidates by us may otherwise be subject to delay or suspension. Our planned clinical trials might not begin on time; may be interrupted, delayed, suspended, or terminated once commenced; might need to be redesigned; might not enroll a sufficient number of patients; or might not be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including the following:
● delays in obtaining regulatory approval to commence a trial;
● imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;
● imposition of a clinical hold because of safety or efficacy concerns by the FDA, or other regulatory authorities, a data safety monitoring board or committee, a clinical trial site’s institutional review board, or us;
● delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
● delays in obtaining required institutional review board approval at each site for clinical trial protocols;
● delays in identifying, recruiting and training suitable clinical investigators;
● delays in recruiting suitable patients to participate in a trial;
● delays in having patients complete participation in a trial or return for post-treatment follow-up;
● clinical sites dropping out of a trial to the detriment of enrollment;
● time required to add new sites;
● delays in obtaining sufficient supplies of clinical trial materials, including comparator drugs;
● delays resulting from negative or equivocal findings of a data safety monitoring board for a trial; or
● adverse or inconclusive results from pre-clinical testing or clinical trials.
Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials, and clinicians’ and patients’ perceptions as to the potential advantages of the investigational drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. Any of these delays in completing our clinical trials could increase costs, slow down the product development and approval process, and jeopardize our ability to commence product sales and generate revenue.
Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy are required, and we may not adequately develop such protocols to support approval.
In addition to FDA requirements and those of other regulatory authorities, an independent institutional review board or an independent ethics committee at each medical institution proposing to participate in the conduct of the clinical trial generally must review and approve the clinical trial design and patient informed consent form before commencement of the study at the respective medical institution. The institutional review boards approve the clinical trial protocols and conduct periodic reviews of the clinical trials. The clinical trial protocols describe the type of people who may participate in the clinical trial, the schedule of tests and procedures, the medications and dosages to be studied, the length of the study, the study’s objectives, and other details. In general, the institutional review board will consider, among other matters, ethical factors, the safety of human subjects and the possibility of liability of the institution conducting the trial. Our pre-clinical studies may not be adequate proof of safety and efficacy, and as a result, we may not be successful in developing clinical trial protocols necessary to support institutional review board approval. Any delay or failure to obtain institutional review board approval to conduct a clinical trial at a prospective site could materially impact the costs, timing, or successful completion of a clinical trial.
We rely on CROs, third-party investigators, and independent sites to conduct our clinical trials. If these third parties do not fulfill their contractual obligations or meet expected deadlines, our planned clinical trials may be extended, delayed, modified, or terminated and we may fail to obtain the regulatory approvals necessary to commercialize our pipeline candidates.
We rely on third-party CROs to conduct our clinical trials. CROs, third-party investigators, and independent sites are subject to cGCPs that include conducting, recording, and reporting the results of clinical trials and to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. The FDA enforces cGCPs through periodic inspections. If these CROs do not perform their obligations, comply with laws or cGCPs, or meet expected deadlines, our planned clinical trials may be extended, delayed, modified, or terminated. We rely on the processes of our CROs to ensure that accurate records are maintained to support the results of the clinical trials. While we or our CROs conduct regular monitoring of clinical sites, we are dependent on the processes and quality control efforts of our third-party contractors to ensure that detailed, quality records are maintained to support the results of the clinical trials that they are conducting on our behalf. Any extension, delay, modification, or termination of our clinical trials or failure to ensure adequate documentation and the quality of the results in the clinical trials could delay or otherwise adversely affect our ability to commercialize our products and pipeline candidates and could have a material adverse effect on our business and operations.
We rely upon independent sites and investigators, such as universities and medical institutions and their faculty or staff, to conduct our clinical trials. These sites and investigators are not our employees and we cannot control the amount or timing of resources that they devote to our programs. If these investigators or collaborators fail to devote sufficient time and resources to our product development programs, do not conduct their activities in compliance with the law, or if their performance is substandard, the approval of our regulatory submissions and our introductions of new products will be delayed or prevented.
Our potential collaborators may also have relationships with other commercial entities, some of which may compete with us. If outside collaborators assist our competitors to our detriment, the approval of our regulatory submissions will be delayed and the sales from our products, if and when commercialized, will be less than expected. Even if clinical trials are completed as planned, their results may not support expectations or intended marketing claims. The clinical trials process may fail to demonstrate that our pipeline candidates are safe and effective for indicated uses. Such failure could cause us to abandon one or more pipeline candidates and could delay development of other pipeline candidates.
Additional delays to the completion of clinical studies may result from modifications being made to the protocol during the clinical trial, if such modifications are warranted and/or required by the occurrences in the given trial.
Each modification to a protocol for a clinical trial must be submitted to the FDA or foreign regulatory authorities and the institutional review boards. This submission could result in the delay or suspension of a clinical trial while the modification is evaluated. In addition, depending on the magnitude and nature of the changes made, the FDA and other regulatory authorities could take the position that the data generated by the clinical trial prior to the protocol modification cannot be pooled with the data collected after the modification because the same protocol was not used throughout the trial. This prohibition might require the enrollment of additional subjects, which could result in the extension of the clinical trial and the FDA and other regulatory authorities delaying approval of one or more pipeline candidates.
We may be required to suspend or discontinue clinical trials because of adverse side effects or other safety risks that could preclude approval of our biologic candidates.
Our clinical trials may be suspended or terminated at any time for a number of reasons. A clinical trial may be suspended or terminated by us, our collaborators, the FDA, or other regulatory authorities because of a failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, presentation of unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using the investigational biologic, changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial, or negative or equivocal findings of the data safety monitoring board or the institutional review board for a clinical trial. An institutional review board may also suspend or terminate our clinical trials for failure to protect patient safety or patient rights. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants. If we elect or are forced to suspend or terminate any clinical trial of any proposed product that we develop, the commercial prospects of such proposed product will be harmed and our ability to generate product revenue from such proposed product will be delayed or eliminated. Any of these occurrences may harm our business, financial condition, results of operations, and prospects significantly.
The future results of our current or future clinical trials may not support our pipeline candidates claims or may result in the discovery of unexpected adverse side effects.
Even if our clinical trials are completed as planned, we cannot be certain that the results will support our pipeline candidates claims or that the FDA or foreign regulatory authorities will agree with our conclusions regarding them. Success in pre-clinical studies and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the later trials will replicate the results of prior trials and pre-clinical studies. The clinical trial process may fail to demonstrate that our pipeline candidates are safe and effective for the proposed indicated uses. If the FDA or foreign regulatory authorities conclude that the clinical trials for any of our pipeline candidates for which we might seek approval have failed to demonstrate safety and effectiveness, we would not receive regulatory approval to market that product in the United States or in other jurisdictions for the indications sought. In addition, such an outcome could cause us to abandon the pipeline candidates and might delay development of others. Any delay or termination of our clinical trials will delay the filing of any product submissions with the FDA or foreign regulatory authorities and, ultimately, our ability to commercialize our pipeline candidates and generate revenues. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’s profile. Adverse clinical trial results, such as death or injury due to side effects, could jeopardize regulatory approval, and if approval is granted, such results may also lead to marketing restrictions or prohibitions. In addition, the clinical trials performed for programs other than for our 3-antigen HBV vaccine involve a relatively small patient population. Because of the small sample size, their results may not be indicative of future results.
International commercialization of our 3-antigen HBV vaccine and our pipeline candidates faces significant obstacles, including obtaining regulatory approvals. Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing or selling our products in such jurisdictions.
Our 3-antigen HBV vaccine is approved for sale in the United States under the brand name PreHevbrio and in Israel under the brand name Sci-B-Vac. In countries where we do not currently have the required approvals (including EU member states, UK, and Canada), we will need to obtain separate approvals from the relevant regulatory, pricing, and reimbursement authorities to market or sell our 3-antigen HBV vaccine or any of our pipeline candidates. Pursuing regulatory approvals will be time-consuming and expensive, and we may not obtain foreign regulatory approvals on a timely basis, if at all. The regulations vary among countries, and regulatory authorities in one market may require different or additional clinical trials than those required to obtain approval in another market, and the time required to obtain approval may differ in one market from that required to obtain approval in another market. Obtaining approval in one country does not ensure approval by regulatory authorities in other countries.
In addition, we have limited international regulatory, clinical, and commercial resources. We entered into a collaborative relationship with Brii Bio for development of a HBV recombinant protein-based immunotherapeutic in China, Hong Kong, Taiwan, and Macau, and may plan to do so with other pipeline candidates in the future, and, as such, current and future partners are critical to our international success. We may not be able to maintain current, or enter into future, collaboration agreements with appropriate partners for important foreign markets on acceptable terms, if at all. Current and future collaborations with foreign partners may not be effective or profitable.
Future legislation, or regulations and policies adopted by the FDA or other regulatory authorities, may increase the time and costs required for us to conduct and complete clinical trials for our pipeline candidates.
The FDA has established regulations, guidelines, and policies to govern the pharmaceutical and biologic development and approval processes, as have foreign regulatory authorities. We expect there will continue to be federal and state laws and/or regulations, proposed and implemented, that could impact our operations and business. Any change in regulatory requirements resulting from the adoption of new legislation, regulations or policies may require us to amend existing clinical trial protocols or add new clinical trials to comply with these changes. Such amendments to existing protocols or clinical trial applications or the need for new ones, may significantly and adversely affect the cost, timing, and completion of the clinical trials for our candidates.
In addition, the FDA’s policies and those of other regulatory authorities may change and additional government regulations may be issued that could prevent, limit, or delay regulatory approval of our pipeline candidates, or impose more stringent product labeling and post-marketing testing and other requirements.
Developments by competitors may establish standards of care that affect our ability to conduct our clinical trials as planned.
Changes in standards related to clinical trial design could affect our ability to design and conduct clinical trials as planned. For example, regulatory authorities may not allow us to compare one or more of our pipeline candidates to a placebo, or may require a change of standard-of-care used as a comparator in a particular clinical indication where approved products are available. In that case, both the cost and the amount of time required to conduct a clinical trial could increase.
We face product liability exposure, which, if not covered by insurance, could result in significant financial liability.
The risk of product liability is inherent in the research, development, manufacturing, marketing, and use of pharmaceutical products. Our 3-antigen HBV vaccine, currently approved for sale in the United States under the brand name PreHevbrio and in Israel under the brand name Sci-B-Vac, our pipeline candidates currently in clinical trials, and any products that we may commercially market in the future may cause, or may appear to have caused, injury or dangerous drug reactions, and expose us to product liability claims. These claims might be made by patients who use the product, their families, healthcare providers, pharmaceutical companies, our corporate collaborators, or others selling such products. If our current products or any of our pipeline candidates were to cause adverse side effects, we may be exposed to substantial liabilities.
In September 2018, two civil claims were brought in the District of Court of the central district in Israel which named 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 since April 2011 and seeking damages in a total amount of NIS 1,879.5 million ($604.3 million). The second claim is a civil action brought by two minors and their parents against SciVac and IMoH alleging, among other things, that SciVac marketed an experimental, defective, hazardous, or harmful vaccine; that Sci-B-Vac was marketed in Israel without 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. The motion seeking approval of a class action has been suspended until a ruling is given on the question of liability in the civil action. The 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.
Regardless of the merits or eventual outcome, product liability claims or other claims related to our products or pipeline candidates may result in:
● decreased demand for our products due to negative public perception;
● injury to our reputation;
● withdrawal of clinical trial participants or difficulties in recruiting new trial participants;
● initiation of investigations by regulators;
● costs to defend or settle the related litigation;
● a diversion of management’s time and our resources;
● substantial monetary awards to trial participants or patients;
● product recalls, withdrawals or labeling, marketing, or promotional restrictions;
● loss of revenues from product sales; and
● the inability to commercialize any of our pipeline candidates, if approved.
We currently maintain product liability insurance, and we generally obtain clinical trial insurance once a clinical trial is initiated. However, the insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Insurance coverage is becoming increasingly expensive, and, in the future, we, or any of our collaborators, may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts or at all to protect us against losses due to liability. Even if our agreements with any current or future collaborators entitle us to indemnification against product liability losses, such indemnification may not be available or adequate should any claim arise. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against product liability claims could prevent or inhibit the commercialization of our pipeline candidates. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired.
Should any of the events described above occur, this could have a material adverse effect on our business, financial condition, and results of operations.
We are subject to extensive, ongoing post-market regulatory requirements and review in the United States, and our products may face future development and regulatory difficulties.
With regard to our 3-antigen HBV vaccine and any other product candidates for which we obtain approval in the United States or other regions (if any), the FDA or other regulatory bodies may still impose significant restrictions on a product’s indicated uses or marketing, or impose conditions for approval, or impose ongoing requirements for potentially costly post-approval studies, including Phase IV clinical trials or post-marketing surveillance. As a condition to granting marketing approval of a product, the FDA or other regulatory bodies may require us to conduct additional clinical trials. The results generated in these post-approval clinical trials could result in loss of marketing approval, changes in product labeling, or new or increased concerns about side effects or efficacy of a product. The Food and Drug Administration Amendments Act of 2007 gives the FDA enhanced post-market authority, including the explicit authority to require post-market studies and clinical trials, labeling changes based on new safety information and compliance with FDA-approved REMS.
We are also subject to ongoing FDA post-market requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, record keeping, and reporting of safety and other post-market information. The FDA’s exercise of its authority could result in delays or increased costs during product development, clinical trials, and regulatory review, increased costs to comply with additional post-approval regulatory requirements, and potential restrictions on sales of approved products. Foreign regulatory agencies often have similar authority and may impose comparable costs. Post-marketing studies, whether conducted by us or by others and whether mandated by regulatory agencies or voluntary, and other emerging data about marketed products, such as adverse event reports, may also adversely affect sales of our pipeline candidates once approved, and potentially our other marketed products. Further, the discovery of significant problems with a product similar to one of our products that implicate (or are perceived to implicate) an entire class of products could have an adverse effect on sales of our approved products. Accordingly, new data about our products could negatively affect demand because of real or perceived side effects or uncertainty regarding efficacy and, in some cases, could result in product withdrawal or recall. Furthermore, new data and information, including information about product misuse, may lead government agencies, professional societies, and practice management groups or organizations involved with various diseases to publish guidelines or recommendations related to the use of our products or the use of related therapies or place restrictions on sales. Such guidelines or recommendations may lead to lower sales of our products.
The holder of a BLA that has been approved also is subject to obligations to monitor and report adverse events and instances of the failure of a product to meet the specifications in the BLA. License holders must submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling, or manufacturing process. Application holders must also submit advertising and other promotional material to the FDA. Advertising and promotional materials must comply with FDA rules in addition to other potentially applicable federal and state laws, including, by way of example, the Federal Trade Commission Act. Any sales and promotional activities are also potentially subject to federal and state consumer protection and unfair competition laws. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA, or such other regulatory agencies as reflected in the product’s approved labeling. In particular, any labeling approved by such regulatory agencies for our pipeline candidates may also include restrictions on use. Such regulatory agencies may impose further requirements or restrictions on the distribution or use of our pipeline candidates as part of a mandatory plan, such as limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll in a registry. If we receive marketing approval for one or more of our pipeline candidates, physicians may nevertheless prescribe such products to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability. In particular, the United States federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.
Depending on the circumstances, failure to meet post-approval requirements by us or our third-party collaborators can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, FDA issuance of Form 483, untitled letters, and/or warning letters, suspension or termination of any ongoing clinical trials, or refusal to allow us to enter into supply contracts, including government contracts. Any government investigation of alleged violations of law could require us to expend significant amounts of time and resources in response, and could generate negative publicity and significantly inhibit our ability to bring to market or continue to market our products and generate revenue.
We may seek to in-license pipeline candidates or technologies to expand our product pipeline and may not succeed.
If and when we deem it to be our strategic priority, we may seek to in-license pipeline candidates or technologies to expand our product pipeline and may not succeed. The number of such candidates and technologies is limited. Competition among large pharmaceutical companies and biopharmaceutical companies for promising pipeline candidates and technologies is intense because such companies generally desire to expand their product pipelines through in-licensing. If we fail to carry out such in-licensing and expand our product pipeline, our potential future revenues may suffer especially if our current products or pipeline candidates fail to generate material revenue.
The failure by us or our current or future manufacturers to obtain FDA or other regulatory agencies’ approval for manufacturing facilities could have a material adverse impact on our business, results of operations, financial condition, and prospects.
Our manufacturing facilities and any of our current and future contract manufacturers, whether the facilities are ours or third-party manufacturer facilities, must be inspected by the FDA, after we submit a BLA and before approval, and/or by the regulators in other jurisdictions for our pipeline candidates to be manufactured for commercial production. When we are approved to market a drug product in the United States, we or our third-party manufacturers must register the manufacturing facilities with the FDA and are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with the FDA’s cGMP regulations. Similar rules apply in the event we are approved to market a medicinal product in the EU. Other than for our 3-antigen HBV vaccine and VBI-2601, which are currently manufactured by us at our manufacturing site in Israel, we are completely dependent on third-party manufacturers for compliance with the requirements of United States and ex-United States regulators for the manufacture of our finished products.
If we or our third-party manufacturers cannot successfully produce material that conforms to our specifications and cGMP requirements of any applicable regulatory agency, we will not be able to secure approval for our manufacturing facilities. If the FDA or another regulatory agency does not approve these facilities for commercial production, we will need to find alternative suppliers, which would result in significant delays in obtaining required regulatory approvals. In addition, if we or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility, or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing, requiring new warnings or other labeling changes to limit use of the drug, requiring that we conduct additional clinical trials, imposing new monitoring requirements or requiring that we establish a REMS program. These challenges may have a material adverse impact on our business, results of operations, financial condition and prospects.
We manufacture clinical and commercial supplies of our 3-antigen HBV vaccine and VBI-2601 at a single location. Any disruption in the operations of our manufacturing facility could adversely affect our business and results of operations.
We rely on our manufacturing facility in Rehovot, Israel, for the manufacture of all clinical and commercial supplies of our 3-antigen HBV vaccine and clinical supplies of VBI-2601. Our current manufacturing facility contains highly specialized equipment and materials and utilizes complicated production processes developed over a number of years, which would be difficult, time-consuming, and costly to duplicate or, though a remote risk, may be impossible to duplicate. If our facility were damaged or destroyed, or otherwise subject to disruption, including contamination, it would require substantial lead-time to replace our manufacturing capabilities and could cause costly delays. In such event, we would be forced to identify and rely entirely on third-party contract manufacturers for an indefinite period of time, which we may not be able to do in a timely manner and would further increase our production costs. Any disruptions or delays at our facility or its failure to meet regulatory compliance would significantly impair our ability to manufacture our 3-antigen HBV vaccine for sale in the jurisdictions where it is approved for sale, for future potential clinical studies of our 3-antigen HBV vaccine, and for our ongoing and future clinical studies of VBI-2601, which would result in increased costs and losses and adversely affect our business and results of operations.
If a supplier of our raw materials and certain reagents fails to provide sufficient quantities to us, we may not be able to obtain an alternative supply on a timely or acceptable basis.
We rely on a single source for our supply of some of our raw materials and certain reagents required for the manufacture our 3-antigen HBV vaccine and VBI-2601. We do not have a written or oral agreement with these single sources of supply, as all orders are handled through individual purchase orders or on an order-by-order basis. Alternative sources from which we can obtain our supply of most of these materials exist. However, we may not be able to find alternative suppliers in a timely manner that would provide supplies of these raw materials or reagents at acceptable quantities and prices, if at all. Any interruption in the supply of these materials would disrupt our ability to manufacture our 3-antigen HBV vaccine or VBI-2601 for further development, current and future clinical trials, and commercial manufacturing, and could have a material adverse effect on our business, commercialization of our 3-antigen HBV vaccine and VBI-2601 and future profit margins, if any.
We do not manufacture any of our raw materials nor do we plan to develop any capacity to do so. Instead, we rely on multiple sources to supply our raw materials so that we can manufacture sufficient quantities of our 3-antigen HBV vaccine and VBI-2601 at our manufacturing facility in Israel and sufficient quantities of our eVLP vaccine candidates at CDMOs. The COVID-19 pandemic has impacted lead times and availability of many raw materials, which may adversely impact our ability to manufacture products in a timely manner. Some of the countries of origin of our raw materials are not the same as our drug manufacturing location. Any disruption in supply of raw materials from a qualified supplier could result in significant delays with our manufacturing, clinical trials, BLA filing, BLA approval or commercial sale of the finished product due to contract delays, the need to manufacture new raw materials, out of specification raw materials, the need for import and export permits, and the failure of the newly sourced raw materials to perform to the standards of the previously sourced raw materials. These delays could have a material adverse effect on our business and future profit margins, if any.
Supply chain and shipping disruptions may result in shipping delays, a significant increase in shipping costs, and could increase product costs and result in lost sales and reputational damage, which may have a material adverse effect on our business, operating results and financial condition.
Our third-party manufacturers and suppliers have experienced, and expect to continue to experience, supply chain disruption and shipping disruptions, including disruptions or delays in loading container cargo in ports of origin or off-loading cargo at ports of destination, as a result of the COVID-19 pandemic, congestion in port terminal facilities, labor supply and shipping container shortages, inadequate equipment and persons to load, dock and offload container vessels and for other reasons. These disruptions may impact our ability to receive our raw materials and certain components required for the manufacture of our 3-antigen HBV vaccine and VBI-2601 and our other pipeline candidates, to distribute our products in a cost-effective and timely manner and to meet demand, all of which could have an adverse effect on our financial condition and results of operations. There can be no assurance that further unforeseen events impacting the supply chain will not have a material adverse effect on us in the future. Additionally, the impacts that supply chain disruptions have on our third-party manufacturers and suppliers are not within our control. It is not currently possible to predict how long it will take for these supply chain disruptions to cease or ease. Prolonged supply chain disruption that may impact us or our manufacturers and suppliers could interrupt product manufacturing, increase raw material and product lead times, increase raw material and product costs, impact our ability to meet customer demand and result in lost sales and reputational damage, all of which could have a material adverse effect on our business, financial condition and results of operations.
We expect the healthcare industry to face increased limitations on reimbursement, rebates, and other payments as a result of continued healthcare reform changes, which could adversely affect third-party coverage of our products and how much or under what circumstances healthcare providers will prescribe or administer our products.
In both the United States and other countries, sales of our products will depend in part upon the availability of reimbursement from third-party payers, which include governmental authorities, managed care organizations and other private health insurers. Third-party payers are increasingly challenging the price and examining the cost effectiveness of medical products and services.
Increasing expenditures for healthcare have been the subject of considerable public attention in the United States. Both private and government entities are seeking ways to reduce or contain healthcare costs. Numerous proposals that would effect changes in the United States healthcare system have been introduced or proposed in Congress and in some state legislatures, including reducing reimbursement for prescription products and reducing the levels at which consumers and healthcare providers are reimbursed for purchases of pharmaceutical products.
Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect the price we can receive for those products. Any reduction in reimbursement that results from federal legislation or regulation may also result in a similar reduction in payments from payers. New laws may also result in additional reductions in healthcare funding, which could have a material adverse effect on our customers, which may affect our financial operations. Legislative and regulatory proposals may expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be certain whether additional legislative changes will be enacted, or whether relevant regulations, guidance, or interpretations will be changed, or what the impact of such changes on our products may be.
Although we cannot predict the full effect on our business of the implementation of existing legislation or the enactment of additional legislation pursuant to healthcare and other legislative reform, we believe that legislation or regulations that would reduce reimbursement for, or restrict coverage of, our products could adversely affect how much or under what circumstances healthcare providers will prescribe or administer our products. This could materially and adversely affect our business by reducing our ability to generate revenue, raise capital, obtain additional collaborators and market our products. In addition, we believe the increasing emphasis on managed care in the United States has and will continue to put pressure on the price and usage of pharmaceutical products, which may adversely impact product sales.
Governments outside the United States tend to impose strict price controls, which may adversely affect our future revenues.
In some countries, particularly countries in Europe, the pricing and/or reimbursement of vaccines and therapeutics is subject to governmental control. In Canada, the prices of patented medicines are subject to price controls. In these countries, pricing negotiations with governmental, reimbursement, and coverage authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a study that compares the cost-effectiveness of our products to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
We face intense competition and rapid technological change, which may make it more difficult to achieve significant market penetration. If we cannot compete successfully for market share against other companies, we may not achieve sufficient product revenues and our business will suffer.
The market for our products and pipeline candidates is characterized by intense competition and rapid technological advances. For example, our 3-antigen HBV vaccine will compete in the United States and Europe with other approved HBV vaccines marketed by GSK, Dynavax, and Merck and will compete outside the United States and Europe with vaccines from GSK and Merck. If competitors’ existing products or new products are more effective than or considered superior to our current or future products, the commercial opportunity for our products will be reduced or eliminated. Existing or future competing products may provide greater therapeutic convenience or clinical or other benefits for a specific indication than our products or may offer comparable performance at a lower cost. We face competition from fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. Many of our competitors have products or pipeline candidates already approved or in development. In addition, many of these competitors, either alone or together with their collaborative partners, are larger than us and have substantially greater financial, technical, research, marketing, sales, distribution, and other resources. Existing and potential competitors may develop or market products that are more effective or commercially attractive than any that we are developing or marketing. Competitors may obtain regulatory approvals and introduce and commercialize products before we do. These developments could have a significant negative effect on our financial condition. Even if we are able to compete successfully, we may not be able to do so in a profitable manner.
We may be exposed to liability claims associated with the use of hazardous materials and chemicals.
Our research and development activities involve the controlled use of hazardous materials and chemicals. Although we believe that our safety procedures for using, storing, handling and disposing of these materials comply with federal, state, provincial and local laws and regulations, we cannot completely eliminate the risk of accidental injury or contamination from these materials. In the event of such an accident, we could be held liable for any resulting damages and any liability could materially adversely affect our business, financial condition and results of operations. In addition, the federal, provincial, state, and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive materials and waste products may require us to incur substantial compliance costs that could materially adversely affect our business and financial condition.
Our products and pipeline candidates may never achieve market acceptance, even if we obtain regulatory approvals.
Even if we receive regulatory approvals for the commercial sale of our products and pipeline candidates, the commercial success of these products and pipeline candidates will depend on, among other things, their acceptance by physicians, patients, third-party payers such as health insurance companies and other members of the medical community as a prophylaxis or therapeutic and a cost-effective alternative to competing products. If our products and pipeline candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors, including:
● our ability to provide acceptable evidence of safety and efficacy;
● the prevalence and severity of adverse side effects;
● whether our vaccines are differentiated from other vaccines based on immunogenicity or convenience;
● availability, relative cost, and relative efficacy of alternative and competing treatments;
● the effectiveness of our marketing and distribution strategy;
● publicity concerning our products or competing products and treatments; and
● our ability to obtain sufficient third-party insurance coverage or reimbursement.
If our products or pipeline candidates do not become widely accepted by physicians, patients, third-party payers and other members of the medical community, our business, financial condition and results of operations would be materially and adversely affected.
If we are unable to manufacture our pipeline candidates and products in sufficient quantities, at sufficient yields or are unable to obtain regulatory approvals for a manufacturing facility for our vaccines, we may experience delays in product development, clinical trials, regulatory approval, commercial distribution, and the In Process Research & Development (“IPR&D”) assets may become impaired and be written off at some time in the future.
Completion of our clinical trials and commercialization of our pipeline candidates and products require access to, or development of, facilities to manufacture our pipeline candidates and products at sufficient yields and at commercial-scale. We have limited experience manufacturing any of our pipeline candidates and products in the volumes that will be necessary to support large-scale clinical trials or commercial sales. Efforts to establish these capabilities may not meet initial expectations as to scheduling, scale-up, reproducibility, yield, purity, cost, potency, or quality.
If we are unable to manufacture our pipeline candidates and products in clinical or commercial quantities, as the case may be, in sufficient yields, with sufficient purity, potency, quality, and identity, then we must find, qualify, and rely on third parties. Any new third-party manufacturers must also receive FDA approval and/or approval from similar regulatory agencies before we may use product manufactured by them as our commercial products and pipeline candidates. Our products may be in competition with other products for access to these facilities and may be subject to delays in manufacture if our third-party manufacturers give other products greater priority. Any delays experienced by third-party manufacturers, whether directly or by its raw material suppliers in relation to our project, may result in delays in clinical development of our pipeline candidates and products.
As a result, any delay or interruption, could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, the IPR&D assets may become impaired and be written off at some time in the future, which could also have a material adverse effect on the financial statements.
In light of our current resources and limited commercial experience, we have and may need to continue to establish third-party relationships to successfully commercialize our pipeline candidates.
The near and long-term commercial viability of our products and pipeline candidates may depend, in part, on our ability to successfully execute current strategic collaborations and establish new strategic collaborations with contract commercial organizations, pharmaceutical and biotechnology companies, non-profit organizations, and government agencies. Establishing and maintaining strategic collaborations and obtaining government funding is difficult and time-consuming. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position or based on their internal pipeline or available resources; government agencies may reject contract or grant applications based on their assessment of public need, the public interest, the ability of our products to address these areas, or other reasons beyond our expectations or control. If we fail to establish or maintain collaborations or government relationships necessary for successful commercialization on acceptable terms, we may not be able to commercialize our pipeline candidates or generate sufficient revenue to fund further research and development efforts.
New or existing collaborations, including our collaborations with Syneos Health and with Brii Bio, and/or government funding may never result in the successful development or commercialization of any pipeline candidates for several reasons, including the fact that:
● we may not have the ability to control the activities of our partners and cannot provide assurance that they will fulfill their obligations to us, including with respect to the license, development, and commercialization of pipeline candidates, in a timely manner or at all;
● such partners may not devote sufficient resources to the commercialization or clinical development of our pipeline programs or properly maintain or defend our intellectual property rights (if required);
● relationships with our collaborators could also be subject to certain fraud and abuse laws if not structured properly to comply with such laws;
● any failure on the part of our partners to perform or satisfy their obligations to us could lead to delays in the development or commercialization of our pipeline candidates and affect our ability to realize product revenue; and
● disagreements, including disputes over the ownership of technology developed with such collaborators, could result in litigation, which would be time-consuming and expensive, and may delay or terminate research and development efforts, regulatory approvals, and commercialization activities.
If we or our collaborators fail to maintain our existing agreements or if we fail to establish agreements as necessary, we could be required to undertake research, development, manufacturing, and commercialization activities solely at our own expense. These activities would significantly increase our capital requirements and, given our lack of sales, marketing and distribution capabilities, significantly delay the commercialization of our pipeline candidates.
Our marketing, promotional, and business practices, including those that occur prior to the FDA’s or another regulatory authority’s approval of a product or pipeline candidate, are subject to extensive regulation and any material failure to comply could result in significant sanctions against us.
The marketing, promotional, and business practices of pharmaceutical and biologics companies are subject to extensive regulation, the enforcement of which may result in the imposition of civil and/or criminal penalties, injunctions, and/or limitations on marketing practices for some of our products.
There is no official FDA definition of “promotion,” but FDA regulations, guidance documents, and enforcement actions make clear that the FDA takes a broad view of the term. Promotional materials include any written, oral, graphic, or broadcast material made and distributed to consumers by a company or its agents with the intent to proactively communicate certain attributes (e.g., use/indication, safety, effectiveness, etc.) of a given drug or biologic product. Examples include presentations, posters, brochures, notes, e-mail messages (external), blog postings, corporate websites, social media posts, videos, oral representations made by company representatives, product samples, reprints of scientific, and medical articles, among others. To be lawful, promotions, at a minimum, must:
● be consistent with, and not contrary to, labeling;
● present “fair balance” between risks and benefits;
● be truthful and not false or misleading;
● be adequately substantiated (when required); and
● include adequate directions for use.
Aside from off-label promotion, a lack of fair balance between risk information and benefit information has become the highest enforcement priority for the FDA in this context. We may also be subject to enforcement action in connection with any promotion of an investigational product. Under the Food, Drug, and Cosmetic Act, a sponsor or investigator, or any person acting on behalf of a sponsor or investigator, shall not represent in a promotional context that an investigational new drug is safe or effective for the purposes for which it is under investigation or otherwise promote the product candidate. The most common factors that trigger FDA enforcement actions for unauthorized promotion of an investigational drug include:
● Absence of clear and prominent statement on investigational status;
● Use of trade name pre-approval (without adequate clarification as to status);
● Lack of separation between information on investigational and approved products;
● Characterizations and descriptions of a promotional nature that are phrased as established facts (e.g., “long actions,” “tamper-resistant,” “next generation”); and
● Presentation of information in a manner that visually suggests it is an approved product (e.g., under a heading titled “Products”).
Any enforcement action or lawsuit brought against us in connection with alleged violations of applicable promotion requirements, or prohibitions, could harm our business and our reputation, as well as the reputation of any then approved products we may promote or commercialize.
We may be subject to additional risks due to the involvement of third-party drugs, devices, or other products in clinical studies evaluating the safety and/or efficacy of our pipeline candidates and/or in connection with the commercial use of any such candidates approved by the FDA for marketing in the United States in the future.
One or more existing FDA-approved therapies may be involved in the clinical testing of a given product candidate, as such product candidate may be tested in combination with a therapy developed by another company or administered using a third-party medical device.
For example, our cancer vaccine immunotherapeutic candidate, VBI-1901, is in a two-arm Phase I/IIa clinical study where it is administered in combination with two separate adjuvants via intradermal injection. Accordingly, our clinical studies for VBI-1901, and any other study involving a third-party product, may subject us to additional risks that we may not otherwise face in connection with studies conducted without third-party products.
Among other potential risks, a third-party product we utilize could be defective, removed from the market, or otherwise rendered unavailable for the applicable use. Additionally, the safety and/or efficacy of such products may be called into question for reasons beyond our control, including, but not limited to, serious adverse events associated with the product; regulatory enforcement action against the product’s manufacturer, developer, or other responsible party, as applicable; or any other circumstance or finding that negatively impacts the perceived utility or reliability of the product. The occurrence of any such events in connection with a third-party drug, device, or other product used in our clinical studies could cause the FDA and/or industry to question the validity of our clinical trial data or improperly attribute safety or efficacy issues to our pipeline candidates, either of which could have a material adverse effect on our ability to successfully develop and commercialize such candidates. We cannot predict the ultimate impact that any third-party product used in our clinical studies may have on our business, as such is dependent upon a number of factors outside of our reasonable control.
Risks Related to Our Capital Requirements and Financings
We will need additional financing to continue our operations. If we are unable to obtain additional financing on acceptable terms, we may have to curtail or cease our development plans and operations.
Our revenue generating activities include product sales and research and development services pursuant to fee for service agreements, collaboration agreements, and certain governmental research and development grants. However, our revenues have not been significant to date. 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, if approved, to generate revenue, and, ultimately, to attain profitable operations or alternatively advance the products and technology to such a point that an acquirer would find attractive. We face substantial demand on our cash resources to fund operations and our growth plans in the future.
To date, we have been able to obtain financing; however, there is no assurance that financing will be available in the future, or if it is, that it will be available at terms acceptable to us. Additional financings may be effected through debt financing and/or the issuance of equity securities, there being no assurance that any type of financing on terms acceptable to us will be available or otherwise occur. Debt financing must be repaid regardless of whether we generate revenues or cash flows from operations and may be secured by substantially all of our assets. Any equity financing or debt financing that requires the issuance of equity securities or securities convertible into equity securities would cause the percentage ownership of our shareholders to be diluted, which dilution may be substantial. Also, any additional equity securities issued may have rights, preferences, or privileges senior to those of existing shareholders. Furthermore, if we issue additional securities, whether equity or debt, or if investors believe we may issue additional securities, the market price of our common shares could decline. If such financing is not available when required or is not available on acceptable terms, we may be required to reduce or eliminate certain pipeline candidates and development activities, and it may ultimately require us to suspend or cease operations, which could cause investors to lose the entire amount of their investment.
We have incurred significant losses since inception and anticipate that we will incur continued losses for the foreseeable future.
We have incurred significant net losses and negative operating cash flows since inception. We incurred net losses of approximately $69.8 million and $46.2 million in 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $378.4 million. Our income generating activities have been from sales of Sci-B-Vac in Israeli markets that have generated a limited number of sales to-date, fees from research and development services, and revenue from partnership collaborations. We expect to incur significant operating losses for the next several years as we support the commercialization activities of our 3-antigen HBV vaccine and foreign regulatory agency submissions, expand our research and development, advance other pipeline candidates into and through clinical development, including our immunotherapeutic HBV candidate, GBM vaccine immunotherapeutic candidate, prophylactic coronavirus vaccine program candidates, and CMV candidate, complete clinical trials and seek regulatory approval. Because of the numerous risks and uncertainties associated with developing and commercializing pharmaceutical products, as well as those related to our expectations for the License Agreement, we are unable to predict the extent of any future losses or guarantee when, or if, our company will become profitable or cash flow positive. If we never achieve profitability or positive cash flows, or achieve either later than we anticipate, you may lose some or all of your investment in us.
Our financial statements have been prepared on a going concern basis; we must raise additional capital to fund our operations in order to continue as a going concern.
In its report dated March 7, 2022, EisnerAmper LLP, our independent registered public accounting firm, expressed substantial doubt about our ability to continue as a going concern as we have suffered recurring losses from operations and have insufficient liquidity to fund our future operations. If we are unable to improve our liquidity position, we may not be able to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern and, therefore, be required to realize our assets and discharge out liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment. As of December 31, 2021, we had $121.7 million of cash. In order to have sufficient cash to fund our operations in the future, we will need to raise additional equity or debt capital and cannot provide any assurance that we will be successful in doing so.
Risks Related to Our Business
Adverse effects resulting from vaccines or immunotherapies or therapies could also negatively affect the perceptions by members of the health care community, including physicians, about the safety and effectiveness of our products and pipeline candidates.
There are many other companies that have developed or are currently trying to develop vaccines or immuno-oncology products for the treatment or prevention of diseases that overlap with our products and pipeline candidates. If adverse effects were to result from vaccines or immunotherapy drugs or therapies being developed, manufactured and marketed by others that overlap with our products and pipeline candidates, it could be attributed to our products or pipeline candidates or immunotherapy protocols as a whole. In fact, in the past biologics have been associated with certain safety risks and other companies developing biologics have had patients in trials suffer from serious adverse events, including death. Any such attribution could negatively affect the perceptions by members of the health care community, including physicians, about the safety and effectiveness of our products or pipeline candidates. Our industry is susceptible to rapid technological changes and there can be no assurance that we will be able to overcome any new technological challenges presented by the adverse effects resulting from vaccines or immunotherapy drugs or therapies developed, manufactured or marketed by others.
We have international operations, which subject us to risks inherent with operations outside of Canada.
We have international operations and we may seek to obtain market approvals in foreign markets that we deem to generate significant opportunities. However, even with the cooperation of a commercialization partner, conducting drug development in foreign countries involves inherent risks, including, but not limited to: difficulties in staffing, funding, and managing foreign operations; different and unexpected changes in regulatory requirements; export restrictions; tariffs and other trade barriers; different reimbursement systems; economic weaknesses or political instability in particular foreign economies and markets; compliance with tax, employment, immigration, and labor laws for employees living or travelling abroad; supply chain and raw materials management; difficulties in protecting, acquiring, enforcing, and litigating intellectual property rights; fluctuations in currency exchange rates; and potentially adverse tax consequences.
If we were to experience any of the difficulties listed above, or any other difficulties, our international development activities and our overall financial condition may suffer and cause us to reduce or discontinue our international development and market approval efforts.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to:
● comply with FDA regulations or similar regulations of comparable foreign regulatory authorities;
● provide accurate information to the FDA or comparable foreign regulatory authorities;
● comply with manufacturing standards that we have established;
● comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities;
● properly protect patient information which is subject to federal and state privacy and security laws or similar laws in foreign countries;
● report financial information or data accurately; or
● disclose unauthorized activities to us.
In particular, sales, marketing, and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commissions, customer incentive programs, and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions that we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us and we are not successful in defending or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.
We may be subject to federal, provincial and state healthcare laws, regulations, and policies in connection with our current and/or future activities and our failure to comply with those laws could have a material adverse effect on our results of operations and financial conditions.
Since we have obtained FDA approval to commercialize PreHevbrio, our operations are directly, or indirectly, through our relationships with healthcare providers, customers, and third-party payors, subject to various federal and state fraud and abuse laws, including, without limitation the following:
● the federal anti-kickback statute (and state equivalents), which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for, or the purchase, order or recommendation of, any item or service that is reimbursable, in whole or in part, by a federal healthcare program such as the Medicare and Medicaid programs;
● the federal physician self-referral law, commonly known as the “Stark Law” (and state equivalents), which prohibits a physician from making a referral for certain designated health services covered by the Medicare program if the physician or an immediate family member has a financial relationship with the entity providing the designated health services, unless the financial relationship falls within an applicable exception to the prohibition;
● the federal False Claims Act and related laws (and state equivalents) that prohibit and impose liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the federal government;
● the so-called qui tam provisions of the federal and state False Claims Act, which permit whistleblowers to sue in the name of the federal or state governments’ healthcare providers and others for alleged violations of those laws and which permit whistleblowers to obtain a reward for bringing the case. These qui tam cases have been on the rise in recent years;
● federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
● the federal transparency requirements under the Affordable Care Act, including the provisions commonly referred to as the Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid or Children’s Health Insurance Program to report annually to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value to physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members;
● the federal Civil Monetary Penalties Law, which prohibits, among other things, the offering or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies;
● the Prescription Drug Marketing Act, as amended, which governs the distribution of prescription drug samples to healthcare practitioners;
● the fraud and abuse provisions of the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations (collectively “HIPAA”), which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and established comprehensive federal standards with respect to the privacy and security of protected health information and requirements for the use of certain standardized electronic transactions, and amendments made in 2013 to HIPAA under the Health Information Technology for Economic and Clinical Health Act, which strengthens and expands HIPAA privacy and security compliance requirements, increases penalties for violators, extends enforcement authority to state attorneys general, and imposes requirements for breach notification;
● analogous state laws and regulations, including (among others) state anti-kickback, self-referral, and false claims laws, which may apply to our business practices, including, but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the United States federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information and that require tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; state and local laws that require the registration of pharmaceutical sales representatives; and
● state and local law equivalents of HIPAA related to the privacy and security of patient information in certain circumstances, which are typically not preempted by HIPAA and may apply more broadly, and/or contain different, potentially more stringent, restrictions and obligations, than HIPAA thus complicating compliance efforts.
Further, the Affordable Care Act, among other things, amended the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity can be found guilty of fraud or false claims under the Affordable Care Act without actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Ensuring that our future business arrangements with third parties comply with applicable healthcare laws and regulations could involve substantial costs. Possible sanctions for violation of the applicable fraud-and-abuse laws may include monetary fines, civil, and criminal penalties, exclusion from Medicare, Medicaid, and other government programs, forfeiture of amounts collected in violation of such prohibitions, individual imprisonment, additional reporting obligations, and oversight (if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws), and the curtailment or restructuring of our operations. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against such claims, could result in a material adverse effect on our reputation, business, results of operations, and financial condition. In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and teaching hospitals for marketing, medical directorships, and other purposes. Some states impose a legal obligation on companies to adhere to voluntary industry codes of behavior (e.g., the PhRMA Code and the AdvaMed Code of Ethics), which apply to pharmaceutical and medical device companies’ interactions with healthcare providers; some mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts, compensation and other remuneration to physicians, and some states limit or prohibit such gifts.
Most recently, there has been a trend in federal and state legislation aimed at requiring pharmaceutical companies to disclose information about their production and marketing costs, and ultimately lowering costs for drug products. Several states have passed or introduced bills that would require disclosure of certain pricing information for prescription drugs that have no threshold amount or are above a certain annual wholesale acquisition cost. In June 2016, Vermont became the first state to pass legislation requiring certain drug companies to disclose information relating to justification of certain price increases and various others have since-followed. The United States Congress has also introduced bills targeting prescription drug price transparency, and two such bills-the Patient Right to Know Drug Prices Act (for private plans) and the Know the Lowest Price Act (for Medicare Parts C and D)-were signed into law on October 10, 2018. These laws and any other such implementation of legislation requiring publication of drug costs could materially and adversely impact our business, financial condition and results of operations by promoting a reduction in drug prices.
The scope and enforcement of these laws is uncertain and subject to change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. We are not able to predict the impact on our business of any changes in these laws. Federal or state regulatory authorities may challenge our future activities under these laws. Any such challenge could have a material adverse effect on our reputation, business, results of operations and financial condition. Any state or federal regulatory review of the Company, regardless of the outcome, would be costly and time-consuming.
Our business, and our current and future activities, product candidates, or any future approved products, if any, may also be subject to equivalent healthcare-related laws and regulations of any or all of the other countries, provinces, or other applicable jurisdictions in which we currently operate or may operate in the future. There can be no assurance that the potential compliance obligations of any such foreign laws, and any corresponding consequences of noncompliance, will be similar to those of United States fraud and abuse laws.
Healthcare legislative reform measures or other changes may have a material adverse effect on our business and results of operations.
In the United States, there have been a number of legislative and regulatory initiatives focused on containing the cost of healthcare. The Affordable Care Act, for example, substantially changed the way healthcare is financed by both governmental and private insurers. The Affordable Care Act contains a number of provisions that could impact our business and operations, primarily, once we obtain FDA approval to commercialize one of our product candidates in the United States, if ever, and may also affect our operations in ways we cannot currently predict. ACA provisions that may affect our business include those governing enrollment in federal healthcare programs, reimbursement changes, rules regarding prescription drug benefits under health insurance exchanges, expansion of the 340B program, expansion of state Medicaid programs, and fraud and abuse enforcement. Such changes may impact existing government healthcare programs, industry competition, formulary composition, and may result in the development of new programs, including Medicare payment for performance initiatives, health technology assessments, and improvements to the physician quality reporting system and feedback program.
During his time in office, former President Trump supported the repeal of all or portions of the Affordable Care Act. However, the Trump administration’s relevant repeal and/or reform efforts were met with substantial opposition from various federal and state legislators and agencies and other industry stakeholders, which has contributed to the current state of uncertainty as to the validity and application of healthcare reform measures initiated thus far, the fate of the Affordable Care Act, and the current and future implications for applicable participants within the United States healthcare industry, including providers, patients, manufacturers, developers, and other relevant individuals and institutions.
In January 2017, Congress passed a budget resolution that authorizes congressional committees to draft legislation to repeal all or portions of the Affordable Care Act and permits such legislation to pass with a majority vote in the Senate. President Trump also issued an executive order in which he stated that it is his administration’s policy to seek the prompt repeal of the Affordable Care Act and directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation of the provisions of the Affordable Care Act to the maximum extent permitted by law.
Additionally, the Tax Cuts and Jobs Act of 2017 eliminated the Affordable Care Act provision requiring individuals to purchase and maintain health coverage, or the “individual mandate,” by reducing the associated penalty to zero, beginning in 2019. In December 2018, a district court in Texas held that the individual mandate is unconstitutional and that the rest of the Affordable Care Act is, therefore, invalid. On appeal, the Fifth Circuit Court of Appeals affirmed the holding on the individual mandate but remanded the case back to the lower court to reassess whether and how such holding affects the validity of the rest of the Affordable Care Act. Substantial uncertainty remains as to the future of the Affordable Care Act after the United States Supreme Court declined to expedite its review of the Fifth Circuit’s holding on January 21, 2020. Accordingly, these issues were not resolved before the election of President Biden in November 2020. There is no way to predict whether, and to what extent, if any, the Affordable Care Act will remain in-effect in the future, and it is unclear how these decisions, subsequent appeals, or other efforts to repeal and replace the Affordable Care Act will impact the United States healthcare industry or our business.
Furthermore, we cannot predict what actions the Biden administration will implement in connection with the Affordable Care Act. The adoption or implementation of new or amended legislation at the federal or state level could affect our ability to obtain regulatory approval for any of our vaccine candidates and the commercial viability of our future approved products, if any. We cannot predict the ultimate nature, timing, or effect of any changes to the Affordable Care Act or other federal and state reform efforts, and there is no assurance that such efforts will not adversely affect our future business and financial results.
Our internal computer systems, or those of our third-party vendors, collaborators, or other contractors may be subject to various federal and state confidentiality and privacy laws in the United States and abroad and could sustain system failures, security breaches, or other disruptions, any of which could have a material adverse effect on our business.
Numerous international, national, federal, provincial and state laws, including state privacy laws (such as the California Consumer Privacy Act, or “CCPA”), state security breach notification and information security laws, and federal and state consumer protection laws govern the collection, use, and disclosure of personal information. In addition, most healthcare providers who may, in future, prescribe and dispense our products in the United States and research institutions in the United States with whom we collaborate for our sponsored clinical trials are “covered entities” subject to privacy and security requirements under Health Care Insurance and Accountability Act of 1996 (“HIPAA”). Among other things, the Health Information Technology for Economic and Clinical Health Act (“HITECH”) makes HIPAA’s privacy and security standards directly applicable to business associates, independent contractors, or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. Certain of our clinical sites or collaborators could be subject to a wide range of penalties and sanctions under HIPAA, including criminal penalties if they knowingly obtain or disclose individually identifiable health information maintained by a covered entity in a manner that is not authorized or permitted by HIPAA. Failure to comply with current and future privacy laws and regulations could result in governmental enforcement actions (including the imposition of significant penalties), criminal and civil liability, and/or adverse publicity that negatively affects our business.
Moreover, we rely on our internal and third-party provided information technology systems and applications to support our operations and to maintain and process company information including personal information, confidential business information and proprietary information. Furthermore, we generate intellectual property that is central to the future success of the business and transmit certain amounts of confidential information. Additionally, we collect, store and transmit confidential information of collaborators, employees or other third-party contractors. We have experienced in the past, and may experience in the future, cybersecurity incidents, threats, and intrusions. Incidents, threats, and intrusions may require remediation to protect sensitive information, including our intellectual property and personal information, and our overall business. The continually changing threat landscape of cybersecurity today makes our systems potentially vulnerable to service interruptions, system errors or to security breaches from inadvertent or intentional actions by our employees, partners, and vendors, and from attacks by malicious third parties, including supply chain attacks originating at our third-party partners. Such attacks are of ever-increasing levels of sophistication. Attacks may be made by individuals or groups that have varying levels of expertise, some of which are technologically advanced and well-funded including, without limitation, nation states, organized criminal groups, and hacktivists organizations. A breach of cybersecurity, a disruption in availability, or the unauthorized alteration of systems or data could adversely affect our business, results of operations and financial condition, or lead to the loss, theft, destruction, corruption, or compromise of our information or that of our collaborators, or third-party contractors, as applicable.
While we have invested in cybersecurity and have implemented processes and procedural controls to maintain the confidentiality and integrity of such information, there can be no guarantee that our efforts will prevent all service interruptions or security breaches. Any such interruption or breach of our systems could adversely affect our business operations and result in the loss of critical or sensitive confidential information or intellectual property, and could result in financial, legal, and reputational harm to our business, including legal claims and proceedings, liability under laws that protect the privacy of personal information, government enforcement actions, and regulatory penalties, as well as remediation costs. While we seek to protect our information technology systems from these types of incidents, the healthcare sector continues to see a high frequency of cyberattacks and increasingly sophisticated threat actors, and our systems and the information maintained within those systems remain potentially vulnerable to data security incidents. Moreover, losses from such events may not be completely covered by insurance coverage (or may not be covered at all by any of our insurance policies depending on the circumstances). Furthermore, this insurance may not be sufficient to cover the financial, legal, or reputational losses that may result from an interruption or breach of our systems.
Any of the above-described cyber or other security-related incidents may trigger notification obligations to affected individuals and government agencies, legal claims or proceedings, and liability under foreign, federal, provincial, and state laws that protect the privacy and security of personal information. Our proprietary and confidential information may also be accessed. Any one of these events could cause our business to be materially harmed and our results of operations may be adversely impacted. Finally, as cyber threats continue to evolve, and privacy and cybersecurity laws and regulations continue to develop, we may need to invest additional resources to implement new compliance measures, strengthen our information security posture, or respond to cyber threats and incidents.
We may expand our business through the acquisition of rights to new pipeline candidates that could disrupt our business and harm our financial condition.
We may expand our product offerings, and we may seek acquisitions of pipeline candidates or technologies to do so. We may also seek to expand our business through the acquisition of businesses or companies having rights to new pipeline candidates. Acquisitions involve numerous risks, including substantial cash expenditures; potentially dilutive issuances of equity securities; incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of the acquisition; difficulties in assimilating the acquired technologies or the operations of the acquired companies; diversion of management’s attention away from other business concerns; risks of entering markets in which we have limited or no direct experience; and the potential loss of key employees or key employees of the acquired companies.
There can be no assurance that any acquisition by us will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired product, company or business. In addition, future success of the combined company will depend in part on our ability to manage the rapid growth associated with some of these acquisitions. There can be no assurance that we will be able to make the combination of our business with that of any acquired products, businesses, or companies work or be successful. Furthermore, the development or expansion of our business or any acquired products, businesses, or companies may require a substantial capital investment by us. We may not have these necessary funds, or such funds might not be available on acceptable terms or at all. We may also seek to raise funds by selling capital stock or instruments convertible into or exercisable for capital stock, which could dilute each shareholder’s ownership interest.
Under current United States, Canadian, and Israeli law, we may not be able to enforce covenants not to compete or to prevent the breach of confidentiality agreements, and therefore, may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.
We generally enter into non-competition agreements with our employees and certain key consultants. These agreements prohibit our employees and certain key consultants, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. However, under current United States, Canadian, and Israeli law, we may be unable to enforce these agreements, in whole or in part, and therefore, we cannot be sure that these employees and key consultants will not compete with us. For example, in the past, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we are unable to demonstrate that harm would be caused to us or otherwise enforce these non-competition agreements, in whole or in part, we may be unable to prevent our competitors from benefitting from the expertise our former employees or consultants developed while working for us and our ability to remain competitive may be diminished.
We rely on confidential information that we seek to protect through confidentiality agreements with our employees and other parties. If these agreements are breached, competitors may obtain and use our confidential information to gain a competitive advantage over us or could substantially delay product development or harm our commercialization activities. We may not have any remedies against our competitors and any remedies that may be available to us may not be adequate to protect our business or compensate us for the damaging disclosure. In addition, we may have to expend resources to protect our interests from possible infringement by others, which may divert our available funds away from our business activities.
Global, market and economic conditions may negatively impact our business, financial condition and share price.
Concerns over inflation, geopolitical issues, the U.S. financial markets, foreign exchange rates, capital and exchange controls, unstable global credit markets and financial conditions and the COVID-19 pandemic, have led to periods of significant economic instability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth going forward, and increased unemployment rates. Our general business strategy may be adversely affected by any such economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions. If these conditions continue to deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. In addition, there is a risk that one or more of our current or future service providers, manufacturers, suppliers, our third-party payors, and other partners could be negatively affected by difficult economic times, which could adversely affect our ability to attain our operating goals on schedule and on budget or meet our business and financial objectives.
In addition, we face several risks associated with international business and are subject to global events beyond our control, including war, public health crises, such as pandemics and epidemics, trade disputes, economic sanctions, trade wars and their collateral impacts and other international events. Any of these changes could have a material adverse effect on our reputation, business, financial condition or results of operations. There may be changes to our business if there is instability, disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest; and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease. In February 2022, armed conflict escalated between Russia and Ukraine. The sanctions announced by the U.S. and other countries, following Russia’s invasion of Ukraine against Russia to date include restrictions on selling or importing goods, services or technology in or from affected regions and travel bans and asset freezes impacting connected individuals and political, military, business and financial organizations in Russia. The U.S. and other countries could impose wider sanctions and take other actions should the conflict further escalate. It is not possible to predict the broader consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, currency exchange rates and financial markets, all of which could impact our business, financial condition and results of operations.
We have significant operations located in Israel and, therefore, our results may be adversely affected by political, economic, and military instability in Israel.
Our subsidiary’s operations are located in Rehovot, Israel. Accordingly, political, economic, and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our business and results of operations.
Any armed conflicts, terrorist activities, or political instability in the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.
Since the Gaza Strip’s 2007 coup, by which the terrorist organization Hamas seized control, there have been a number of armed conflicts between Hamas and Israel - in December-January 2008-9, November 2012, July-August 2014 and as recently as May 2021 - in all of which conflicts, rockets were fired from Gaza into Israeli civilian population centers. During the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party backed by Iran and controlling large swathes of Lebanon. These conflicts involved missile strikes against civilian targets in various parts of Israel, including areas in which our Rehovot facilities, employees and some of our consultants are located, and negatively affected business conditions in Israel. Civil unrest and political turbulence have occurred in other countries in the region, including Syria which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, a civil war that has been ongoing in Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any intervention may lead to additional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran also has a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and both the Allawite regime and various rebel militia groups in Syria. These situations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities, or political instability in the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital.
Commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions generally and could harm our results of operations.
Political relations could limit our ability to sell or buy internationally.
We could be adversely affected by the interruption or reduction of trade between Israel and its trading partners. To date, the State of Israel and Israeli companies have been repeatedly subjected to economic boycotts. Several countries, companies and organizations continue to participate in a boycott of Israeli firms and others doing business with Israel or with Israeli companies. Also, over the past several years there have been calls in Europe and elsewhere to reduce trade with Israel. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business.
The operations of our subsidiary in Israel may be disrupted as a result of the obligation of Israeli citizens to perform military service.
Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty until they reach the age of 40 (or older, for reservists who are officers or who have certain special training) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity and recent armed conflicts, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. The operations of our subsidiary in Israel could be disrupted by such call-ups, which may include the call-up of our employees or the employees of our Israeli business partners. Such disruption could materially adversely affect our business, financial condition and results of operations.
Exchange rate fluctuations between the United States dollar, Canadian dollar and the New Israeli Shekel currencies may negatively affect our earnings cash flows.
Our functional currency is the United States dollar. We incur expenses in New Israeli Shekel, which we refer to as NIS, Canadian Dollars and United States dollars. As a result, we are exposed to the risks that the United States dollar may devalue relative to the Canadian Dollar or NIS, or, if the United States dollar appreciates relative to the Canadian Dollar or NIS, that the inflation rate in the United States may exceed such rate of devaluation of the United States dollar, or that the timing of such devaluation may lag behind inflation in the United States. The average exchange rate for the year ended December 31, 2021, was US$1.00 = NIS 3.229 and US$1.00 = CAD $1.2536. We cannot predict any future trends in the rate of inflation in the United States or the rate of devaluation, if any, of the United States dollar against the Canadian Dollar or NIS.
Risks Related to Our Intellectual Property
Our success depends on our ability to maintain the proprietary nature of our technology. We may become subject to third parties’ claims alleging infringement of patents and proprietary rights or seeking to invalidate our patents or proprietary rights, which would be costly, time-consuming, and, if successfully asserted against us, delay or prevent the development of our current or future pipeline candidates or commercialization of our products.
Our success in large part depends on our ability to maintain the proprietary nature of our technology. To do so, we must, at significant cost, prosecute patent applications and maintain existing patents, obtain new patents, and pursue trade secret and other intellectual property protection. We also must operate without infringing the proprietary rights of third parties or allowing third parties to infringe our rights. We currently have rights to over 190 fully owned, co-owned, or exclusively licensed patents and patent applications. However, patent issues relating to pharmaceuticals and biologics involve complex legal, scientific, and factual questions.
To date, no consistent policy has emerged regarding the breadth of biotechnology patent claims that are granted by the United States Patent and Trademark Office or enforced by the federal courts. Therefore, we do not know whether our patent applications will result in the issuance of patents, or that any patents issued to us will provide us with any competitive advantage. We also cannot be sure that we will develop additional proprietary products that are patentable. Furthermore, there is a risk that others will independently develop similar technology or products or circumvent the patents issued to us.
Even if we are issued patents for our technologies, there is always a risk that third parties will initiate post grant review or inter parties review proceedings to challenge the validity of one or more of our patents. These proceedings can result in the loss of patent claims. Even if we are successful in defending our patents during post grant review or inter parties review proceedings, these procedures are time consuming and expensive and may have a negative impact on our results.
There is also a risk that third parties may challenge our existing patents in court or claim that we are infringing their patents or proprietary rights. We cannot assure you that the manufacture, use, sale, offer for sale, or importation of any of our products or current or future pipeline candidates will not infringe existing or future patents. Because we have not conducted a formal freedom to operate analysis for patents related to our products or pipeline candidates, we may not be aware of patents that have already been issued that a third-party might assert are infringed by one of our products or current or future pipeline candidates. Because patent applications can take many years to issue and may be confidential for eighteen months or more after filing, there also may be applications now pending of which we are unaware and which may later result in issued patents that we may infringe by commercializing any of our products or current or future pipeline candidates. We could incur substantial costs in defending patent infringement suits or in filing suits against others to have their patents declared invalid or to claim infringement of our patents. It is also possible that we may be required to obtain licenses from third parties to avoid infringing third-party patents or other proprietary rights. We cannot be sure that such third-party licenses would be available to us on acceptable terms, if at all. If we are unable to obtain required third-party licenses, we may be delayed in or prohibited from developing, manufacturing or selling products requiring such licenses.
Although our patent filings include claims covering various features of our pipeline candidates, including composition, methods of manufacture and use, our patents do not provide us with complete protection against the development of competing products. Furthermore, follow-on versions of patented biologic products (i.e., biosimilars) may have structural differences that cause them to fall outside the scope of patent claims. Some of our know-how and technology is not patentable. To protect our proprietary rights in unpatentable intellectual property and trade secrets, we require employees, consultants, advisors, and collaborators to enter into confidentiality agreements. These agreements may not provide meaningful protection for our trade secrets, know-how, or other proprietary information.
Our 3-antigen HBV vaccine is not currently protected by any pending patent application nor any unexpired patent. Accordingly, our 3-antigen HBV vaccine may be subject to competition from the sale of generic products that could adversely affect our business and operations.
Our 3-antigen HBV vaccine has no patent protection, and therefore, we will seek to rely on non-patent data exclusivity in the BPCIA and similar legislation in other countries, which is described further under “-Risks Related to our Intellectual Property -We may not be able to obtain marketing exclusivity in the United States under the BPCIA or equivalent regulatory data exclusivity protection in other jurisdictions for our products.”
Our 3-antigen HBV vaccine is the only product we currently market or are commercializing in the United States and Israel. Failure to obtain and retain marketing exclusivity or expiration of the market exclusivity could seriously adversely affect the revenue potential for our 3-antigen HBV vaccine in the jurisdictions where it is approved for sale.
Our ability to protect and enforce our patents does not guarantee that we will secure the right to commercialize the patents.
A patent is a limited monopoly right conferred upon an inventor, and any successors in title, in return for the making and disclosing of a useful, new, and non-obvious invention. This monopoly is of limited duration but, while in force, allows the patent holder to prevent others from making and/or using his invention. While a patent gives the holder this right to exclude others, it is not a license to commercialize the invention, where other permissions may be required for permissible commercialization to occur. For example, a drug cannot be marketed in the United States without the appropriate authorization from the FDA, regardless of the existence of a patent covering the product. Further, the invention, even if patented itself, may be prohibited from commercialization if it infringes the valid patent rights of another party.
Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent offices, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The United States Patent and Trademark Office and various foreign governmental patent offices require compliance with a number of procedural, documentary, fee payment, and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case, which could result in a material adverse effect on our business or results of operations.
We are dependent on technologies we have licensed, and we may need to license in the future, and if we fail to obtain licenses we need, or fail to comply with our payment obligations in the agreements under which we in-license intellectual property and other rights from third parties, we could lose our ability to develop our pipeline candidates.
We currently are dependent on licenses from third parties for certain of our key technologies, including the license under the Ferring License Agreement and the license from UPMC. 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 the SciGen Assignment Agreement, we are required to pay royalties to SciGen Ltd. equal to 5% of net sales (as defined in the Ferring License Agreement) of Product. Under the Ferring License Agreement and the SciGen Assignment Agreement, we originally were to pay royalties on a country-by-country basis until the date 10 years after the date of commencement of the first royalty year in respect of such country. In April 2019, we exercised our option to extend the Ferring License Agreement in respect of all the countries that still make up the territory for an additional 7 years by making a one-time payment to Ferring of $100. Royalties under the Ferring License Agreement and SciGen Assignment Agreement will continue to be payable for the duration of the extended license periods. Under our license agreement with UPMC and other licensors relating to eVLP technology, we have an exclusive license to a family of patents that is expected to expire in the United States in 2022 and have 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 extension of our existing license to cover this patent family.
No assurance can be given that our existing license will be extended on reasonable terms or at all. In addition, we expect we will need to license intellectual property from other third parties in the future and that these licenses will be material to our business. No assurance can be given that we will generate sufficient revenue or raise additional financing to meet our payment obligations in the license agreements with Ferring, UPMC, or other license agreements we enter into with third parties in the future. Any failure to make the payments required by the license agreements may permit the licensor to terminate the license. If we were to lose or otherwise be unable to maintain these licenses for any reason, it would halt our ability to develop our pipeline candidates. Furthermore, such loss of these licenses may enable development of new products that may compete with our pipeline candidates, and our competitors may gain proprietary position. Any of the foregoing could result in a material adverse effect on our business or results of operations.
In addition, we do not own the patents or patent applications that we license, and as such, we may need to rely upon our licensors to properly prosecute and maintain those patent applications and prevent infringement of those patents. If our licensors are unable to adequately protect their proprietary intellectual property we license from legal challenges, or the Company is unable to enforce such licensed intellectual property against infringement or alternative technologies, we will not be able to compete effectively in the drug discovery and development business.
If patent laws or the interpretation of patent laws change, our competitors may be able to develop and commercialize our discoveries.
Important legal issues remain to be resolved as to the extent and scope of available patent protection for biopharmaceutical products and processes in the United States and other important markets outside the United States, such as Europe, China and Japan. As such, litigation or administrative proceedings may be necessary to determine the validity, scope and ownership of certain of our and others’ proprietary rights. Any such litigation or proceeding may result in a significant commitment of resources in the future and could force us to do one or more of the following: cease selling or using any of our products that incorporate the challenged intellectual property, which would adversely affect our revenue; obtain a license or other rights from the holder of the intellectual property right alleged to have been infringed or otherwise violated, which license may not be available on reasonable terms, if at all; and redesign our products to avoid infringing or violating the intellectual property rights of third parties, which may be time-consuming or impossible to do. In addition, changes in patent laws in the United States and other countries may result in allowing others to use our discoveries or develop and commercialize our products. We cannot provide assurance that the patents we obtain or the unpatented technology we hold will afford us significant commercial protection.
We may not be able to enforce our intellectual property rights throughout the world. This risk is exacerbated for us because we expect that one or more of our products or pipeline candidates will be manufactured and used in a number of foreign countries.
The laws of foreign countries may not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This risk is exacerbated for us as a result of our existing and planned manufacturing operations, clinical study sites, and marketing authorizations in a number of foreign countries.
The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement or other misappropriation of our intellectual property rights. For example, several foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents and trade secrets may provide limited or no benefit.
Most jurisdictions in which we have applied for, intend to apply for or have been issued patents have patent protection laws similar to those of the United States, but some of them do not. For example, in addition to the collaboration with Brii Bio, we may do business in China, Indonesia, and India in the future, these countries may not provide the same or similar protection as that provided in the United States. Additionally, due to uncertainty in patent protection law, we have not filed applications in many countries where significant markets exist.
Proceedings to enforce patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of our intellectual property.
We may not be able to monetize intangible assets, including IPR&D and goodwill, which may result in the need to record an impairment charge.
Our consolidated balance sheet contains approximately $62.1 million of intangible assets. For IPR&D assets, which consist of the CMV and GBM programs, the risk of failure is significant, and there can be no certainty that these assets ultimately will yield successful products. The nature of our business is high-risk and requires that we invest in a large number of projects in an effort to achieve a successful portfolio of approved products. Our ability to realize value on these significant investments is often contingent upon, among other things, regulatory approvals and market acceptance. These IPR&D and goodwill assets may become impaired and be written off at some time in the future, which can have a material adverse effect on the financial statements. An example of an event that is indicative of impairment is a projection or forecast that indicates losses or reduced profits associated with an asset or the market capitalization of a company falling below the net equity value. For IPR&D projects, this could result from, among other things, a change in outlook based on clinical trial data, a delay in the projected launch date or additional expenditures to commercialize the product.
While all intangible assets can face events and circumstances that can lead to impairment, in general, intangible assets that are most at risk of impairment include IPR&D assets. IPR&D assets are high-risk, as research and development is an inherently risky activity.
We may not be able to obtain marketing exclusivity in the United States under the BPCIA or equivalent regulatory data exclusivity protection in other jurisdictions for our products.
The BPCIA, which is included in the Affordable Care Act, provides the manufacturer of innovator biologic to seek a twelve-year period of marketing exclusivity. Similar data exclusivity regimes exist in the EU and in Canada, although the term of market exclusivity is shorter than in the United States. We intend to seek the maximum period of market exclusivity for our 3-antigen HBV vaccine and our other pipeline candidates in each jurisdiction, but there is no guarantee that any of our products will receive any marketing exclusivity under the BPCIA, or under analogous legislation in other jurisdictions. Furthermore, changes in applicable law could alter any period of market exclusivity or limit its availability. Our failure to obtain exclusivity for any product that is ultimately approved by the FDA, the EMA or Health Canada may expose us to substantial competition, which could have significant adverse financial consequences.
Risks Related to Our Indebtedness
Our obligations under our credit facility are secured by substantially all of our assets, so if we default on those obligations, the lender could foreclose on our assets. As a result of these security interests, such assets would only be available to satisfy claims of our general creditors or to holders of our equity securities if we were to become insolvent at a time when the value of such assets exceeded the amount of our indebtedness and other obligations.
K2 HealthVentures LLC (“K2” or the “Lender”), pursuant to the Loan and Guaranty Agreement (the “Loan Agreement”), dated May 22, 2020, and amended on May 7, 2021 (the “First Amendment”) has a security interest in substantially all of our assets other than intellectual property. As a result, if we default under our obligations to the lender, the lender could foreclose on its security interests and liquidate some or all of these assets, which would harm our business, financial condition and results of operations. The principal amount of the term loan as of December 31, 2021, was $30.0 million ($32.2 million including the exit fee).
In the event of a default the Lender would have a prior right to substantially all of our assets to the exclusion of our general creditors. In that event, our assets would first be used to repay in full all indebtedness and other obligations secured by the Lender, resulting in all or a portion of our assets being unavailable to satisfy the claims of any unsecured indebtedness. Only after satisfying the claims of any unsecured creditors would any amount be available for our equity holders. These events of default include, among other things, our failure to pay any amounts due under the Loan Agreement and the First Amendment or any of the other loan documents, a breach of covenants under the Loan Agreement, our insolvency, a material adverse effect occurring, the occurrence of certain defaults under certain other indebtedness or certain final judgments against us.
The pledge of these assets and other restrictions may limit our flexibility in raising capital for other purposes. Because substantially all of our assets are pledged under the term loan, our ability to incur additional secured indebtedness or to sell or dispose of assets to raise capital may be impaired, which could have an adverse effect on our financial flexibility.
If we are unable to comply with certain financial and operating restrictions in our existing credit facility, we may be limited in our business activities and access to credit or may default under our credit facility.
Provisions in the Loan Agreement impose restrictions or require prior approval on our ability, and the ability of certain of our subsidiaries to, among other things:
● incur additional debt;
● pay dividends and make distributions;
● make certain investments and acquisitions;
● guarantee the indebtedness of others or our subsidiaries;
● redeem or repurchase capital shares;
● create liens or encumbrances;
● enter into transactions with affiliates;
● engage in new lines of business;
● sell, lease or transfer certain parts of our business or property;
● incur obligations for capital expenditures;
● issue additional capital shares; and
● acquire new companies and merge or consolidate.
The Loan Agreement also contains other customary covenants. We may not be able to comply with these covenants in the future. Our failure to comply with these covenants may result in the declaration of an event of default, which, if not cured or waived, may result in the acceleration of the maturity of indebtedness outstanding under this agreement and would require us to pay all amounts outstanding. If the maturity of our indebtedness is accelerated, we may not have sufficient funds available for repayment or we may not have the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us or at all. Our failure to repay our indebtedness would result in our lender foreclosing on all or a portion of our assets and force us to curtail or cease our operations.
Our outstanding term loan obligations may adversely affect our cash flow and our ability to operate our business.
Pursuant to the terms of Loan Agreement and the First Amendment, the Lender made a term loan to us in aggregate amount of $30.0 million. In 2021, we made average monthly payments of interest in the amount of approximately $175. We are required to pay interest only until January 1, 2023, and starting January 1, 2023 estimated monthly principal and interest payments of $1,775 until June 2024, when the entire amount is due.
The terms of our term loan could have negative consequences to us, such as:
● we may be unable to obtain additional financing to fund working capital, operating losses, capital expenditures or acquisitions on terms acceptable to us, or at all;
● the amount of our interest expense may increase because our term loan has a variable rate of interest at any time dependent on one-month London Interbank Offered Rate greater than 1%; and
● we may be more vulnerable to economic downturns and adverse developments in our industry or the economy in general.
Our ability to meet our expenses and debt obligations will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors. We will be unable to control many of these factors, such as economic conditions. We cannot be certain that we will continue to have sufficient capital to allow us to pay the principal and interest on our debt and meet any other obligations. If we do not have enough money to service our debt, we may be required, but unable to refinance all or part of our existing debt, sell assets, borrow money or raise equity on terms acceptable to us, if at all, and the lender could foreclose on its security interests and liquidate some or all of our assets.
Risks Related to Our Common Shares
The price of our common shares has been, and may continue to be, volatile. The COVID-19 pandemic has resulted in significant financial market volatility, and its impact on the global economy remains uncertain. A continuation or worsening of the pandemic could have a material adverse impact on the market price of our common shares. This may affect the ability of our investors to sell their shares, and the value of an investment in our common shares may decline.
During the 12-month period ended February 28, 2022, our common shares traded as high as $4.31 per share and as low as $1.21 per share. The market prices of our common shares may continue to be volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following:
● future announcements about us, our collaborators or competitors, including the results of testing, technological innovations, or new products and services;
● clinical trial results;
● depletion of cash reserves;
● additions or departures of key personnel;
● operating results that fall below expectations;
● announcements by us relating to any strategic relationship;
● sales of equity securities or issuance of additional debt;
● industry developments;
● changes in state, provincial, or federal regulations affecting us and our industry;
● the continued large fluctuations in major stock market indexes which causes investors to sell our common shares;
● economic, political, and other external factors; and
● period-to-period fluctuations in our financial results.
Furthermore, the stock market in general and the market for biotechnology companies, in particular, have from time-to-time experienced extreme price and volume fluctuations that are unrelated or disproportionate to the operating performance of the affected companies. The COVID-19 pandemic has resulted in significant financial market volatility and uncertainty in recent months. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common shares.
We may not meet the continued listing requirements of The NASDAQ Capital Market, which could result in a delisting of our common shares.
Our common shares are listed on The Nasdaq Capital Market. We have in the past, and may in the future, be unable to comply with certain of the listing standards that we are required to meet to maintain the listing of our common shares on The Nasdaq Capital Market. We have in the past received deficiency letters from the Listing Qualifications Department of Nasdaq indicating that we did not meet the minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2).
If The Nasdaq Capital Market delists our common shares from trading on its exchange for failure to meet the listing standards, an investor would likely find it significantly more difficult to dispose of or obtain our shares, and our ability raise future capital through the sale of our shares could be severely limited. We additionally may not be able to list our common shares on another national securities exchange, which could result in our securities being quoted on an over-the-counter market. If this were to occur, our shareholders could face significant material adverse consequences, including limited availability of market quotations for our common shares and reduced liquidity for the trading of our securities. In addition, we could experience a decreased ability to issue additional securities and obtain additional financing in the future. There can be no assurance that an active trading market for our common shares will develop or be sustained. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.
We have no immediate plans to pay dividends.
We plan to reinvest all of our earnings, to the extent we have earnings, in order to market our products and to cover operating costs and to otherwise become and remain competitive. We do not plan to pay any cash dividends with respect to our securities in the foreseeable future. We cannot assure you that we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our common shares as a dividend. In addition, our Loan Agreement with K2 prohibits us from declaring or paying dividends or making distributions on any class of our capital stock. We currently intend to retain earnings, if any, for reinvestment in our business. Therefore, holders of our common shares should not expect to receive dividends on our common shares.
Common shares eligible for future sale may cause the price of our common shares to decline.
From time to time, certain of our shareholders may be eligible to sell all or some of their restricted common shares by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act of 1933, as amended, subject to certain limitations. In general, pursuant to Rule 144, non-affiliate shareholders may sell freely after six months, subject only to the current public information requirement (which disappears after one year). Of the 258,250,273 common shares outstanding as of December 31, 2021, approximately 191,323,735 common shares are held by “non-affiliates,” all of which are currently freely tradable either because those were issued in a registered offering or pursuant to Rule 144.
Any substantial sale of our common shares pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse effect on the market price of our common shares.
In addition, as of December 31, 2021, we had outstanding options, awards, and warrants for the purchase of 19,958,177 common shares. Of this amount, options, awards and warrants for the purchase of 6,585,769 common shares are held by non-affiliates, who may sell these shares in the public markets from time to time, without limitations on the timing, amount or method of sale. If our share price rises, the holders may exercise their options and sell a large number of shares. This could cause the market price of our common shares to decline.
We are a “smaller reporting company” and may elect to comply with reduced public company reporting requirements, which could make our common shares less attractive to investors.
We are currently a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act. For as long as we continue to be a “smaller reporting company”, we may take advantage of exemptions from various reporting requirements that are applicable to other public reporting companies that are not smaller reporting companies, including providing simplified executive compensation disclosures in our filings and having certain other decreased disclosure obligations in our filings with the Securities and Exchange Commission (the “SEC”), including being required to provide only two years of audited financial statements in our annual reports. Consequently, it may be more challenging for investors to analyze our results of operations and financial prospects.
We will remain a smaller reporting company so long as (1) the value of our common shares held by non-affiliates is less than $250 million as measured on the last business day of our second fiscal quarter, or (2) our annual revenues are less than $100 million during the most recently completed fiscal year and the value of our common shares held by non-affiliates is less than $700 million as measured on the last business day of our second fiscal quarter.
Furthermore, we are a non-accelerated filer as defined by Rule 12b-2 of the Exchange Act, and, as such, are not required to provide an auditor attestation of management’s assessment of internal control over financial reporting, which is generally required for SEC reporting companies under Section 404(b) of the Sarbanes-Oxley Act. Because we are not required to, and have not, had our auditor provide an attestation of our management’s assessment of internal control over financial reporting, a material weakness in internal controls may remain undetected for a longer period.
We cannot predict if investors will find our securities less attractive because we may rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the price of our securities may be more volatile.
United States civil liabilities may not be enforceable against us or certain of our officers.
We are governed by the Business Corporations Act (British Columbia) (“BCBCA”) and a substantial portion of our assets, including our manufacturing facility in Rehovot, Israel, and our research facility in Ottawa, Canada, are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or to enforce judgments obtained against us in United States courts, in any action, including actions predicated upon the civil liability provisions of United States federal securities laws or any other laws of the United States. Additionally, rights predicated solely upon civil liability provisions of United States federal securities laws or any other laws of the United States may not be enforceable in original actions, or actions to enforce judgments obtained in Unites States courts, brought in Canadian or Israeli courts. In addition, two of our officers reside outside of the United States, and all or a substantial portion of their assets may be located outside the United States, which may make effecting service of process within the United States or enforcing judgments obtained against such persons in United States courts difficult.
We are governed by the corporate laws of British Columbia which in some cases have a different effect on shareholders than the corporate laws of Delaware, United States.
We are governed by the BCBCA and other relevant laws, which may affect the rights of shareholders differently than those of a company governed by the laws of a United States jurisdiction, and may, together with our charter documents, including the advance notice provisions in our articles for the nomination of directors, have the effect of delaying, deferring, or discouraging another party from acquiring control of our company by means of a tender offer, a proxy contest, or otherwise, or may affect the price an acquiring party would be willing to offer in such an instance. The material differences between the BCBCA and Delaware General Corporation Law, or DGCL, that may have the greatest such effect include, but are not limited to, the following: (i) for material corporate transactions (such as mergers and amalgamations, other extraordinary corporate transactions or amendments to our articles) the BCBCA generally requires a two-thirds majority vote by shareholders, whereas DGCL generally only requires a majority vote; and (ii) under the BCBCA a holder of 5% or more of our common shares can requisition a special meeting of shareholders, whereas such right does not exist under the DGCL.
The concentration of the capital stock ownership with our insiders may limit the ability of other shareholders to influence corporate matters.
As of December 31, 2021, approximately 25.9% of our outstanding common shares was controlled by our officers, directors, beneficial owners of 10% or more of our securities and their respective affiliates. As a result, these shareholders, if they acted together, may be able to determine or influence matters that require approval by our shareholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other shareholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a corporate transaction that other shareholders may view as beneficial.
General Risk Factors
We may not be successful in hiring and retaining key employees, in which case our business may be harmed.
Our business is highly dependent upon the continued services of our senior management and key scientific and technical personnel. As such, our future success depends on our ability to identify, attract, hire or engage, retain, and motivate well-qualified managerial, technical, clinical, regulatory, business, and commercial personnel. Our operations require qualified personnel with expertise in nonclinical pharmacology and toxicology, pharmaceutical development, clinical research, legal and regulatory affairs, manufacturing, sales, and marketing. We must compete for qualified individuals with numerous biopharmaceutical companies, universities, and other research institutions. Competition for such individuals is intense, and, when the need arises, we may not be able to hire the personnel necessary to support our efforts. There can be no assurance that these professionals will be available in the market, or that we will be able to retain existing professionals or to meet or to continue to meet their compensation requirements. Furthermore, the cost base in relation to such compensation, which may include equity compensation, may increase significantly, which could have a material adverse effect on us. Failure to establish and maintain an effective management team and work force could adversely affect our ability to operate, grow, and manage our business. An overall tightening and increasingly competitive labor market, notably in response to the COVID-19 pandemic, has been recently observed in the U.S., Canada, and Israel. A sustained labor shortage or increased turnover rates within our employee base, caused by the COVID-19 pandemic or as a result of general macroeconomic factors, could lead to increased costs, such as increased wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate our manufacturing and distribution facilities and overall business. If we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we may take to respond to a decrease in labor availability, such as overtime and third-party outsourcing, have unintended negative effects, our business could be adversely affected. An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, caused by the COVID-19 pandemic or as a result of general macroeconomic factors, could have a material adverse impact on our operations, results of operations, liquidity or cash flows.
We could be adversely affected by violations of the United States Foreign Corrupt Practices Act and similar anti-bribery laws.
We are subject to the United States Foreign Corrupt Practices Act and similar anti-corruption laws in other jurisdictions. These laws generally prohibit companies and their intermediaries from engaging in bribery or making other prohibited payments to government officials for the purpose of obtaining or retaining business, and some have record keeping requirements. The failure to comply with these laws could result in substantial criminal and/or monetary penalties. We operate in jurisdictions that have experienced corruption, bribery, pay-offs, and other similar practices from time-to-time and, in certain circumstances, such practices may be local custom. Our Code of Business Conduct and Ethics mandates compliance with these anti-corruption laws. However, we cannot be certain that these policies and procedures will protect us against liability. There can be no assurance that our employees, other agents, or third-party manufacturers or other organizations will not engage in such conduct for which we might be held responsible. If our employees, other agents, or third-party manufacturers or other organizations are found to have engaged in such practices, we could suffer severe criminal or civil penalties and other consequences that could have a material adverse effect on our business, financial condition, results of operations, cash flows, and/ or share price.
Business interruptions could limit our ability to operate our business.
Our operations, as well as those of any collaborators on which we depend, are vulnerable to damage or interruption from computer viruses, human error, natural disasters, extreme weather, electrical and telecommunication failures, international acts of terror, public health crises, such as pandemics and epidemics, and similar events. Our formal disaster recovery plan and back-up operations and business interruption insurance may not be adequate to compensate us for losses we may suffer. A significant business interruption could result in losses or damages incurred by us and require us to cease or curtail our operations.
Since December 2019, the COVID-19 pandemic has resulted in government-imposed quarantines, travel restrictions and other public health safety measures worldwide. For additional discussion of the impact of the COVID-19 pandemic on our business, please see the risk factor titled “The ongoing coronavirus pandemic has caused interruptions or delays of our business plan and may have a significant adverse effect on our business.”
Our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, research data, our proprietary business information and that of our suppliers, technical information about our products, clinical trial plans and employee records. Similarly, our third-party providers possess certain of our sensitive data and confidential information. The secure maintenance of this information is critical to our operations and business strategy. Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, ransomware, cyber fraud, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, encrypted, lost, or stolen. Any such access, inappropriate disclosure of confidential or proprietary information, or other loss of information, including our data being breached at third-party providers, could result in legal claims or proceedings, liability or financial loss under laws that protect the privacy of personal information, disruption of our operations or our product development programs, and damage to our reputation, which could adversely affect our business. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.
We are required to comply with the domestic reporting regime under the Securities Exchange Act of 1934, as amended, and incur significant legal, accounting, and other expenses, and our management are required to devote substantial time to compliance initiatives and corporate governance practices.
We are required to comply with all of the periodic disclosure and current reporting requirements of the Securities Exchange Act of 1934, as amended, applicable to a publicly traded United States domestic issuer. The obligations of being a public reporting company require significant expenditures, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended, and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the listing requirements of The Nasdaq Capital Market. These rules require the establishment and maintenance of effective disclosure and financial controls and procedures, internal control over financial reporting and corporate governance practices, among many other complex rules that are often difficult and time consuming to implement, monitor, and maintain compliance with. Moreover, despite recent reforms made possible by the JOBS Act, the reporting requirements, rules, and regulations will make some activities more time-consuming and costly, particularly after we are no longer an “emerging growth company.” In addition, these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance. Compliance with such requirements also places significant demands on our management, administrative, operational, internal audit, and accounting resources. As a result, we incur, and we expect to continue to incur, legal and financial compliance costs and some activities are highly time consuming and costly.
There are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected.
The ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act require us to identify material weaknesses in internal control over financial reporting, which is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Our management, including our chief executive officer and chief financial officer, does not expect that our internal controls and disclosure controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, in our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions. Over time, a control may be inadequate because of changes in conditions, such as growth of the company or increased transaction volume, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
In addition, discovery and disclosure of a material weakness, by definition, could have a material adverse impact on our financial statements. Such an occurrence could discourage certain customers or suppliers from doing business with us, cause downgrades in our future debt ratings leading to higher borrowing costs and affect how our common shares trade. This could, in turn, negatively affect our ability to access public debt or equity markets for capital.
We may be subject to securities litigation, which is expensive and could divert management attention.
In the past, companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the price of our common shares and trading volume could decline.
The trading market for our common shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. Multiple securities and industry analysts currently cover us. If one or more of the analysts downgrade our common shares or publish inaccurate or unfavorable research about our business, the price of our common shares would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common shares could decrease, which could cause the price of our common shares and trading volume to decline.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B: UNRESOLVED STAFF COMMENTS
Not applicable.

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ITEM 2. PROPERTIES
ITEM 2: PROPERTIES
We rent office and research facility space under several operating leases.
a) Our headquarters, which is currently comprised of approximately 5,874 square feet of office space, is held pursuant to a lease agreement that was entered into on September 23, 2021 with Rayjoe Limited Partnership with a base rent for the premises of $42 per month, subject to a 3% annual increase. The lease commenced on November 1, 2021, and will run through October 31, 2024. We are also responsible for the payment of additional rent, including our pro rata share of real estate taxes, operating expenses, as defined in the lease, and betterment assessments, as defined in the lease.
b) Our manufacturing facility, which is currently comprised of approximately of 3,651 square meters of manufacturing suite, laboratory and office space is held pursuant to a lease agreement that was entered into on June 16, 2006 with Eilot Hashkaot and has been amended five times since it was entered into for the purpose of revising the length of the term, providing for a new base rent and adding additional office space. The amount of the lease is approximately $37 per month and linked to the CPI. The commitments for existing space are for a term of five years ending January 31, 2027.
On January 16, 2017, we entered into a sublease agreement for additional office space of 200 square meters with Green Power YE. The term of the sub lease has been extended twice, and on January 15, 2019, we signed a three year and 9 day extension for the sub lease agreement, the amount of the extended sub lease was for a fixed price including all rental utilities of $8 per month. This agreement was terminated as of January 1, 2022.
On July 11, 2021, we entered into a non-cancelable sublease agreement for additional office space of 536 square meters with EMI Car Wash Systems Ltd at our manufacturing facility in Israel. The term of the lease is for 47 months, commencing January 1, 2022, with the option to extend for an additional 24 months. The amount of the lease is approximately $17 per month.
On September 9, 2021, we entered into a non-cancelable lease agreement for additional office space of 900 square meters with Ayalot Investment at our manufacturing facility in Israel. The term of the lease is 60 months, commencing July 1, 2022, with the option to extend for an additional 60 months. The amount of the lease is approximately $12 per month. We are also responsible for the payment of additional rent, including our pro rata share of real estate taxes, operating expenses, as defined in the lease, and betterment assessments, as defined in the lease.
c) VBI Cda’s research facility, which is comprised of laboratory and office space, is held pursuant to a sub-sublease that was entered into on September 1, 2014 with Iogen Corporation and subsequently amended to include some additional space with a term ending on December 31, 2022 with the option to extend the term for one additional period of three years. On September 5, 2019, the sub-sublease was assigned by Iogen Corporation to 310 Hunt Club GP Inc. (“the Assignee”). The base and additional rent for the premises is approximately $23 per month through December 31, 2022. On September 4, 2020, VBI Cda entered into a further lease agreement for additional office space at our research facility, which commenced on October 1, 2020 and expires on April 30, 2023. The base and additional rent for the additional premises is approximately $6.3 per month through December 31, 2022. VBI Cda is also responsible for its pro rata share of additional rent, payable monthly, which includes, but is not limited to, operating and maintenance costs, real estate taxes, general maintenance and repair costs, insurance and professional fees. In addition to the base rent and the additional rent, VBI Cda is responsible for the payment of a refundable harmonized sales tax as require by the Excise Tax Act (Canada). Pursuant to the sub-sublease, the additional rent per month will not exceed CAD $20.50 per square foot of rentable premises. VBI Cda was required to provide a security deposit in the amount of CAD $18.80 which the Assignee will hold until the end of the term and may, in the event of a failure by VBI Cda to pay rent as and when due, apply the security deposit to the unpaid rent obligation.
Pursuant to these leases, we made rent payments of $1,463 in 2021.
We believe that our office, manufacturing and research facilities are suitable and adequate for our current operations but will consider term extensions or expansion of leased space, depending on market conditions and needs.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3: LEGAL PROCEEDINGS
From time to time, we may be involved in certain claims and litigation arising out of the ordinary course and conduct of business. Management assesses such claims and, if it considers that it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated, provisions for loss are made based on management’s assessment of the most likely outcome.
On September 13, 2018, two 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 1,879.5 million ($604.3 million). 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.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
PART II.

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common shares began publicly trading on The NASDAQ Capital Market on May 9, 2016, under the symbol “VBIV.”
Holders
As of March 3, 2022, we had approximately 817 shareholders of record. This number does not include an indeterminate number of shareholders whose shares are held by brokers in street name.
Dividends
We have not paid cash dividends on our common shares since January 1, 2015, and do not anticipate paying any cash dividends in the foreseeable future, but intend to retain our capital resources for reinvestment in our business. In addition, our Loan Agreement prohibits us from declaring or paying dividends or making distributions on any class of our capital stock.
Recent Issuances of Unregistered Securities
All sales of unregistered securities during the year ended December 31, 2021, were previously disclosed in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.
Purchase of Equity Securities
Not applicable.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6: [RESERVED].

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7: 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 its innovative approach to virus-like particles (“VLPs”), including a proprietary enveloped VLP (“eVLP”) platform technology, VBI develops vaccine candidates that mimic the natural presentation of viruses, designed to elicit the innate power of the human immune system. VBI is committed to targeting and overcoming significant infectious diseases, including hepatitis B (“HBV”), COVID-19 and coronaviruses, and cytomegalovirus (“CMV”), as well as aggressive cancers including glioblastoma (“GBM”). VBI is headquartered in Cambridge, Massachusetts, with research operations in Ottawa, Canada, and a research and manufacturing site in Rehovot, Israel.
Product Pipeline
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. VBI’s proprietary enveloped VLP (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 (“FDA”), European Medicines Agency’s (“EMA”), United Kingdom Medicines and Healthcare products Regulatory Agency (“MHRA”), 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 immuno-oncology and infectious disease.
Pipeline Programs
The table below is an overview of our commercial vaccine and our investigational programs as of January 31, 2022:
Indication
Program
Technology
Current Status
Approved Vaccine
● Hepatitis B
PreHevbrio1,2
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)
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 will be reflected in a future CDC publication 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 expects to commercially launch 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:
● Israel: Approved and commercially available, under the brand name Sci-B-Vac®, for active immunization against HBV infection.
● European Union (“EU”): On February 25, 2022, we announced that the EMA’s Committee for Medicinal Products for Human Use (“CHMP”) adopted a positive opinion for VBI’s 3-antigen HBV vaccine for active immunization against infection caused by all known subtypes of HBV in adults, under the name PreHevbri [Hepatitis B vaccine (recombinant, adsorbed)]. The European Commission (“EC”) will review the CHMP recommendation and a final decision on the Marketing Authorization Application (“MAA”) for PreHevbri in the EU is expected in the coming months. If approved by the EC, the centralized marketing authorization would be valid in all EU Member States as well as in the European Economic Area (“EEA”) countries - Iceland, Liechtenstein, and Norway.
● United Kingdom (“UK”): The MAA for VBI’s 3-antigen HBV vaccine is expected to be reviewed 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.
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 and was designed to assess VBI-2905, our eVLP vaccine candidate directed against the SARS-CoV-2 Beta variant, as both a 1-dose booster in individuals previously immunized with a mRNA vaccine and as a primary 2-dose series in unvaccinated adults. Initial data from the 1-dose booster Phase Ib portion of the ongoing study is expected around the end of Q1 2022, dependent upon receipt of data from third party clinical research organizations. In addition, 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 mid-year 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. Initial data from this study is expected in the second half of 2022.
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. Initial 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 Q2 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 second half of 2022.
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 extension of our existing license to cover this patent family. During the year ended December 31, 2021, we made a milestone payment of €0.2 million; related to our prophylactic coronavirus vaccine program.
Financial Operations Overview
At present, our operations are focused on:
● preparing for commercial launch and thereafter ongoing commercialization of 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 and Canada, where we may obtain regulatory approval;
● 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;
● supporting the ongoing review of the regulatory submissions for our 3-antigen HBV vaccine by the EMA in the EU, MHRA in UK, and Health Canada 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;
● 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 December 31, 2021, VBI had an accumulated deficit of approximately $378.4 million and stockholders’ equity of approximately $143.8 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, 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 $69.8 million for the year ended December 31, 2021, and we expect to continue to incur substantial losses in future periods. We anticipate that we will continue to incur substantial operating expenses as we continue our research and development, clinical studies and commercialize 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 subjects us to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the rules and regulations of the NASDAQ Capital Market, and the Canadian securities regulators.
Overall Performance
The Company had net losses of $69,753 and $46,230 for the year ended December 31, 2021 and 2020, respectively. We had an accumulated deficit of $378,371 at December 31, 2021. We had $121,694 of cash and net working capital of $97,698 as of December 31, 2021.
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 the Israeli Ministry of Health’s procurement organization, and 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 year ended December 31, 2021, 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 manufacturing 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 10 of the Notes to the Consolidated Financial Statements.
Results of Operations
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
All dollar amounts stated below are in thousands, unless otherwise indicated.
Year ended
December 31
Change $ Change %
Revenues $ 631 $ 1,061 $ (430 ) (41 )%
Expenses:
Cost of revenues 10,770 9,168 1,602 17 %
Research and development 19,558 14,859 4,699 32 %
General and administrative 38,335 20,651 17,684 86 %
Total operating expenses 68,663 44,678 23,985 54 %
Loss from operations (68,032 ) (43,617 ) (24,415 ) 56 %
Interest expense, net of interest income (4,732 ) (2,708 ) (2,024 ) 75 %
Foreign exchange gain 3,011 2,916 3,069 %
Loss before income taxes (69,753 ) (46,230 ) (23,523 ) 51 %
Income tax expense - - - - %
NET LOSS $ (69,753 ) $ (46,230 ) $ (23,523 ) 51 %
Revenues
Revenues for the year ended December 31, 2021 were $631 as compared to $1,061 for the year ended December 31, 2020. Revenues for the year ended December 31, 2021 decreased by $430 or 41% due to a decrease in R&D services revenue for VBI-2601, our hepatitis B immunotherapeutic candidate, being developed in collaboration with Brii Bio, as fewer manufacturing and non-clinical research services were required in the year ended December 31, 2021 compared to the year ended December 31, 2020.
Revenue Composition
Product revenue $ 262 $ 283
R&D service revenue
$ 631 $ 1,061
Revenues by Geographic Region
Years ended December 31
$ Change % Change
Revenue in Israel $ 321 $ 284 $ 37 13 %
Revenue in China/Hong Kong (418 ) (58 )%
Revenue in Europe (49 ) (92 )%
Total Revenue $ 631 $ 1,061 $ (430 ) (41 )%
Cost of Revenues
Cost of revenues for the year ended December 31, 2021 was $10,770 as compared to $9,168 for the year ended December 31, 2020. The increase in the cost of revenues of $1,602 or 17% is due to increased outsourced testing costs, direct labor costs, and inventory related costs incurred in the year ended December 31, 2021 compared to the year ended December 31, 2020.
Research and Development Expenses
R&D expenses for the year ended December 31, 2021 were $19,558 as compared to $14,859 for the year ended December 31, 2020. R&D expenses were offset by $14,856 for the year ended December 31, 2021 and $3,157 for the year ended December 31, 2020 due to government grants and funding arrangements. The increase in R&D expenses of $4,699 or 32%, is mainly a result of the (1) the increase in the costs related to our coronavirus vaccine program, including the ongoing Phase I clinical study, that are not offset by government grants and funding arrangements; (2) 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; and (3) increased regulatory costs related to our 3-antigen HBV vaccine.
General and Administrative Expenses
G&A expenses for the year ended December 31, 2021 were $38,335 as compared to $20,651 for the year ended December 31, 2020. G&A expenses were offset by $859 for the year ended December 31, 2021 and $131 for the year ended December 31, 2020 due to government grants and funding arrangements. The G&A expense increase of $17,684 or 86%, excluding the effect of government grants and funding arrangements, is a result of the increase in pre-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.
Loss from Operations
The net loss from operations for the year ended December 31, 2021 was $68,032 as compared to $43,617 for the year ended December 31, 2020. The $24,415 increase in the net loss from operations resulted from the items discussed above.
Interest Expense, Net of Interest Income
The interest expense, net of interest income increased by $2,024 for the year ended December 31, 2021, compared to year ended December 31, 2020, due to the following: (1) the conversion of $2,000 of the secured term loan to common shares, which resulted in $1,161 of additional interest accretion being recognized in interest expense, net of interest income in the consolidated statement of operations and comprehensive loss; and (2) an increase in long-term debt of $12,000.
Foreign Exchange Gain (Loss)
The foreign exchange gain for the year ended December 31, 2021 was $3,011 compared to a foreign exchange gain of $95 for the year ended December 31, 2020. 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.
Net Loss
Net loss of $69,753 for the year ended December 31, 2021 compared to $46,230 for the year ended December 31, 2020 respectively is a result of the items discussed above.
Liquidity and Capital Resources
Year ended December 31
$ Change % Change
Cash $ 121,694 $ 93,825 $ 27,869 30 %
Current Assets 130,284 132,041 (1,757 ) (1 )%
Current Liabilities 32,586 17,348 15,238 88 %
Working Capital 97,698 114,693 (16,995 ) (15 )%
Accumulated Deficit (378,371 ) (308,618 ) (69,753 ) 23 %
As of December 31, 2021, we had cash of $121,694 as compared to $93,825 as of December 31, 2020. As of December 31, 2021, we had working capital of $97,698 as compared to working capital of $114,693 at December 31, 2020. Working capital is calculated by subtracting current liabilities from current assets.
Net Cash Used in Operating Activities
The Company incurred net losses of $69,753 and $46,230 in the year ended December 31, 2021 and 2020, respectively. The Company used $39,908 and $47,050 in cash for operating activities during the year ended December 31, 2021 and 2020, respectively. The decrease in cash outflows is largely a result of an increase in net loss, offset by the change in operating working capital, notably the cash received in advance from the CEPI Funding Agreement.
Net Cash Used in Investing Activities
Net cash flows provided by investing activities was $23,156 for the year ended December 31, 2021 compared to cash used in investing activities of $26,000 for the year ended December 31, 2020. During the year ended December 31, 2020 we purchased short term investments, and during the year ended December 31, 2021 the short-term investments were redeemed.
Net Cash Provided by Financing Activities
Net cash flows provided by financing activities was $44,293 for the year ended December 31, 2021 compared to cash flows provided by financing activities of $122,392 during the year ended December 31, 2020. During the year ended December 31, 2021, we issued common shares for net proceeds of $32,315 and completed debt financing for net proceeds of $11,978. During the year ended December 31, 2020, we issued common shares for net proceeds of $118,713 and completed additional debt financing for net proceeds of $3,679.
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 filed with the United States Securities and Exchange Commission (“SEC”) on July 31, 2020. During the year ended December 31, 2020, the Company issued 15,638,706 common shares under the ATM Program, for total gross proceeds of $64,685 at an average price of $4.14. We incurred $2,101 of shares issuance costs related to the common shares issued resulting in net proceeds of $62,584.
On September 3, 2021, the Company entered into a second Open Market Sale AgreementSM with Jefferies to act as the Company’s sales agent and/or principal, for the issuance and sale of up to an additional $125,000,000 of the Company’s common shares from time to time in an at-the-market public offering, which the Company could choose to use when no shares remain available for issuance under the ATM Program.
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. As of December 31, 2021, $27,022 of common shares remained available for issuance under the ATM Program.
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 million (the “First Tranche Term Loan”). The Lenders originally agreed to make available the following additional tranches subject to the following conditions and upon the submission of a loan request by the Company: (1) up to $10 million available between January 1, 2021 and April 30, 2021 upon achievement of certain milestones (the “Second Tranche Term Loan”), (2) $10 million available between the closing date and December 31, 2021, subject to achievement of a certain U.S. Food and Drug Administration approval (the “Third Tranche Term Loan”), and (3) a final tranche of up to $10 million that can be made available any time prior to June 30, 2022, subject to the advance of the Third Tranche Term Loan, satisfactory review by the administrative agent of our financial and operating plan, and approval by the Lenders’ investment committee (the “Fourth Tranche Term Loan”). The Company obtained the FDA on November 30, 2021 but elected not to draw down the Third Tranche Term Loan. Pursuant to the Loan Agreement, the Lenders originally had the ability to convert, at the Lenders’ option, up to $4 million of the secured term loan into common shares of the Company at a conversion price of $1.46 per share (“K2 conversion feature”) until the maturity date of June 1, 2024. On February 3, 2021, pursuant to the Loan Agreement, the Lenders converted $2 million of the secured term loan into 1,369,863 common shares at a conversion price of $1.46. The Lenders have the ability to convert an additional $2 million at the Lenders’ option.
On May 17, 2021, the Company entered into the First Amendment with the Lenders to: (1) increase the Second Tranche Term Loan from $10 million to $12 million; (2) extend the availability period of the Second Tranche Term Loan beyond April 30, 2021, subject to certain conditions; (3) amend the Second Tranche Term Loan interest rate equal to the greater of (a) 7.75% and (b) prime rate plus 4.50%; and (4) extend the date as of which amortization of the loans under the Loan Agreement shall begin from July 1, 2022 to January 1, 2023.
In connection with the Loan Agreement, on May 22, 2020, the Company issued the Lenders a warrant to purchase up to 625,000 common shares (the “Original K2 Warrant”) at an exercise price of $1.12 (the “Warrant Price”). On May 17, 2021, in connection with the First Amendment, the Company issued the Lenders an amended and restated warrant to purchase an additional 312,500 common shares for a total of 937,500 common shares (the “Restated K2 Warrant”) with the same Warrant Price of $1.12. The number of common shares issuable pursuant to the Restated K2 Warrant, at any given time, is determined by dividing the Warrant Coverage Amount by the Warrant Price, where the Warrant Coverage Amount is equal to the sum of $1.1 million plus the aggregate original principal amount of the Third Tranche and Fourth Tranche Term Loan advanced at that time multiplied by 3.5%. 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 December 31, 2021, 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 December 31, 2021 was 8.25% for the First Tranche Term Loan and 7.75% for the Second Tranche Term Loan. The Company is required to pay only interest until January 1, 2023.
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. For the year ended December 31, 2021, we received $18,363, of which there is a balance remaining of $10,183 in other current liabilities on the consolidated balance sheet.
Underwritten Public Offering
In April 2020, the Company closed an underwritten public offering of 52,272,726 common shares at a price of $1.10 per share for total gross proceeds of $57,500. The Company incurred $3,606 of share issuance costs related to the offering resulting in net cash proceeds of $53,894 and costs related to the issuance of warrants to purchase 705,000 common shares to National Securities Inc. (“National”) or its designees as consideration for National providing financial advisory services in connection with the offering. The warrants issued to National or its designees (“National Warrants”) are exercisable immediately upon issuance and terminate three years following issuance and have an exercise price of $1.50 per share.
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 new pipeline candidates. As of December 31, 2021, VBI had an accumulated deficit of $378,371 and stockholders’ equity of $143,882.
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 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.
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 has caused an unstable economic environment globally. Disruptions in the global financial markets may adversely impact the availability and cost of credit, as well as our ability to raise money in the capital markets. Current economic conditions have been, and continue to be, volatile. Continued instability in these market conditions may limit our ability to access the capital necessary to fund and grow our business.
The Company’s long-term success and ability to continue as a going concern is dependent upon obtaining sufficient capital to fund the research and development of its products, to bring about their successful commercial release, to generate revenue and, ultimately, to attain profitable operations or, alternatively, to advance its products and technology to such a point that they would be attractive candidates for acquisition by others in the industry.
To date, the Company has been able to obtain financing as and when it was needed; however, there is no assurance that financing will be available in the future, or if it is, that it will be available at acceptable terms.
As of December 31, 2021, we have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Net Operating Loss Carryforwards
At December 31, 2021, the Company had NOLs aggregating approximately $352.6 million. The NOLs are available to reduce taxable income of future years and expire as follows:
United States
Canada
Israel
Total
$ -
$
$ -
$
-
1,480
-
1,480
3,732
-
3,742
4,324
-
4,770
1,674
-
2,392
3,135
-
3,807
2,556
1,015
-
3,571
3,617
1,255
-
4,872
2,962
-
-
2,962
3,126
1,467
-
4,593
5,626
5,493
-
11,119
4,661
1,651
-
6,312
5,323
8,762
-
14,085
6,017
9,848
-
15,865
-
2,446
-
2,446
-
7,785
-
7,785
-
16,526
-
16,526
-
13,422
-
13,422
No expiration
18,234
-
214,186
232,420
Total losses
$ 53,968
$ 84,491
$ 214,186
$ 352,645
NOL and tax credit carryforwards are subject to review and possible adjustment by the tax authorities in the respective countries. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. At December 31, 2021, we recorded a 100% valuation allowance against our NOL, as we believe it is more likely than not that the tax benefits will not be fully realized. In the future, if we determine that a portion or all of the tax benefits associated with our tax carryforwards will be realized, net income would increase in the period of determination.
Critical Accounting Policies and Estimates
Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require difficult, subjective and complex judgments by management in order to make estimates about the effect of matters that are inherently uncertain. During the year ended December 31, 2021, there were no significant changes to our critical accounting policies, which are discussed in Note 2 to our Consolidated Financial Statements.
Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates made. We continually evaluate estimates used in the preparation of the consolidated financial statements for reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation.
In particular, significant judgments made by management in the application of U.S. GAAP during the preparation of the consolidated financial statements and estimates with a risk of material adjustment include:
Revenue Recognition
We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) we satisfy the performance obligation(s). At contract inception, we assess the goods or services promised within each contract, assess whether each promised good or service is distinct and identify those that are performance obligations.
The Company must use significant judgment to determine: a) the number of performance obligations based on the determination under step (ii) above and whether those performance obligations are distinct from other performance obligations in the contract; b) the transaction price under step (iii) above; and c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above. The Company uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price. The transaction price is allocated to each performance obligation on an estimated stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied.
Where a portion of non-refundable up-front fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement, they are recorded as contract liabilities and recognized as revenue when (or as) the underlying performance obligation is satisfied.
Product Sales
The Company recognizes revenue from product sales when obligations under the terms of the contract with the customer are satisfied; this occurs upon the transfer of control of the goods to the customers.
Collaborative Arrangements
The Company first evaluates license and/or collaboration arrangements to determine whether the arrangement (or part of the arrangement) represents a collaborative arrangement pursuant to Accounting Standards Codification (“ASC”) Topic 808, Collaborative Arrangements (“ASC 808”), based on the risks and rewards and activities of the parties pursuant to the contractual arrangement. The Company then determines if the collaborative arrangements are within the scope of ASC Topic 606, Revenue Recognition (“ASC 606”).
Collaborative arrangements with partners which are within the scope of ASC 606 typically include payment to us of one or more of the following: (i) license fees; (ii) research and development services to be performed as part of the contract (“R&D services”) (iii) payments related to the achievement of developmental, regulatory, or commercial milestones; and (iv) royalties on net sales of licensed products.
Collaborative arrangements (or elements within the contract that are deemed part of a collaborative arrangement) with partners which represent a collaborative relationship and not a customer relationship, are accounted for outside the scope of ASC Topic 606.
License Fees
If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license.
R&D Services
The promises under the Company’s collaboration and license agreements generally include research and development services to be performed by the Company. For performance obligations that include research and development services, the Company generally recognizes revenue allocated to such performance obligations based on an appropriate measure of progress. The Company utilizes judgment to determine the appropriate method of measuring progress for purposes of recognizing revenue, which is generally an input measure such as costs incurred. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Royalties
For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements.
Income Taxes
In assessing the probability of realizing income tax assets, management makes estimates related to expectations of future taxable income, applicable tax opportunities, expected timing of reversals of existing temporary differences and likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. The Company has recorded a full valuation allowance on its entire net deferred tax assets as it believes it is not more likely than not the tax benefits will be realized.
Intangible Assets and Goodwill
The Company’s intangible assets determined to have indefinite useful lives including IPR&D and goodwill, are tested for impairment annually, or more frequently if events or circumstances indicate that the assets might be impaired. Such circumstances could include but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company has established August 31st as the date for its annual impairment test of IPR&D and goodwill.
The IPR&D assets, which consist of the CMV and GBM programs, were acquired in a business combination, capitalized as an intangible asset and are tested for impairment at least annually until commercialization, after which time the IPR&D will be amortized over its estimated useful life. The impairment test compares the carrying amount of the IPR&D asset to its fair value. If the carrying amount exceeds the fair value of the asset, such excess is recorded as an impairment loss. There was no IPR&D impairment determined as a result of the Company’s annual testing on August 31, 2021. The fair value of the IPR&D assets included in the impairment test was determined using the income approach method and is considered Level 3 in the fair value hierarchy. Some of the more significant estimates and assumptions inherent in the estimate of the fair value of IPR&D assets include the amount and timing of costs to develop the IPR&D into viable products, the amount and timing of future cash inflows, the discount rate and the probability of technical and regulatory success applied to the cash flows. The discount rate used was 11% and the cumulative probability of technical and regulatory success to achieve approval to market the products ranged from approximately 10% to 17%.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit’s carrying amount exceeds its fair value, referred to as a “step zero” approach. Subsequently (if necessary, after step zero), if the carrying value of a reporting unit exceeded its fair value an impairment would be recorded. We would perform our goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. There was no goodwill impairment determined as a result of the Company’s annual testing on August 31, 2021. The fair value of the Company, which consists of a single reporting unit, included in the impairment test was determined using the closing market stock price of VBI as of August 31, 2021.
Accrued Research and Development Expenses
When preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing contracts and communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. Payments under some of the contracts we have with third parties depend on factors such as successful enrollment of certain numbers of patients, site initiation and the completion of clinical trial milestones.
When accruing research and development expenses, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If possible, we obtain information regarding unbilled services directly from our service providers. However, we may be required to estimate the cost of these services based only on information available to us. If we underestimate or overestimate the cost associated with research and development services at a given point in time, adjustments to research and development expenses may be necessary in future periods. Historically, our estimated accrued research and development expenses have approximated actual expense incurred.
Long-Term Debt
The Company accounts for long-term debt under the provisions of ASC 470-20, Debt - Debt with conversion and other options (“ASC 470”). Conversion options are accounted for at intrinsic value and other options, including warrants, are accounted for based on the relative fair value of the warrants, long-term debt, and other options (including conversion options). Conversion and other options are accounted for in additional paid-in capital and result in a debt discount. Final payments or exit fees and debt issuance costs also result in a debt discount. The debt discount is being charged to interest expense, net of interest income in the consolidated statement of operations and comprehensive loss using the effective interest method over the term of the debt.
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. In addition, 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, is currently indeterminable and rapidly evolving, and has adversely affected and may continue to adversely affect our operations and the global economy. Furthermore, other than as discussed in this report, we have no committed source of financing and may not be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to severely curtail, or even to cease, our operations.
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.
Recent Accounting Pronouncements
See Note 3 of Notes to the Consolidated Financial Statements.
Related Parties
During the year ended December 31, 2019, the Company agreed to pay a car loan for an officer of the Company, as part of their compensation arrangement, for $56, repayable over 3 years. The total amount of the car loan lease at December 31, 2021 and December 31, 2020, was $29 and $43, respectively.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to market risk related to changes in interest rates with respect to our cash holdings and our outstanding long-term debt.
As of December 31, 2021, and 2020, we had cash of $121.7 million and $93.8 million, respectively, and short-term investments of $0.0 and $25.3 million, respectively, which have been deposited in high interest rate bank accounts or redeemable guaranteed investment certificates, for a total of $121.7 million and $119.1 million, respectively. Our cash and short-term investments holdings are in accordance with our investment policy approved by our board of directors, which specifies the categories, allocations and ratings of securities we may consider for investment. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. We do not hold or issue derivatives, derivative commodity instruments or other financial instruments for speculative trading purposes. Further, we do not believe our cash have significant risk of default or illiquidity.
As of December 31, 2021, and 2020 we had long-term debt outstanding of $32.2 million and $21.4 million, respectively. The principal amount of the loan made under the Loan Agreement accrues interest at an annual rate equal to the greater of (a) 8.25% or (b) prime rate plus 5.00%. The 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 December 31, 2021 was 8.25% for the First Tranche Term Loan and 7.75% for the Second Tranche Term Loan; the interest rate at December 31, 2020 was 8.25%. Our interest rate risk exposure is primarily due to prime rate fluctuations.
Based on our current interest rate risk, we do not believe that our results of operations or our financial position would be materially affected by a change in interest rates of 100 basis points.
Foreign Currency Risk
We are also exposed to market risk related to change in foreign currency exchange rates. We have operations in Israel, Canada, and the United States and therefore we incur expenses in NIS, Canadian Dollars, and United States dollars. We also contract with certain vendors that are located in Europe which have contracts denominated in foreign currencies. We are subject to fluctuations in foreign currency rates in connection with our foreign operations and certain agreements. We do not currently hedge our foreign exchange rate risk. As of December 31, 2021, and December 31, 2020, we had minimal liabilities to third parties denominated in foreign currencies.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and notes thereto required by this item begin on page of this Form 10-K, as listed in Item 15 of Part IV.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A: CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer and Head of Business Development (our principal financial and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Form 10-K. The evaluation was undertaken in consultation with our accounting personnel and external consultants. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer and Head of Business Development concluded that, as of December 31, 2021, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial and accounting officers and effected by our Board of Directors, management and other personnel, 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 and includes those policies and procedures that:
● pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and
● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our Chief Executive Officer and our Chief Financial Officer and Head of Business Development assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management evaluated the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on our assessment, our Chief Executive Officer and our Chief Financial Officer and Head of Business Development determined that, as of December 31, 2021, our internal control over financial reporting is effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of the last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B: OTHER INFORMATION
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required in response to this Item 10 is incorporated herein by reference from our definitive proxy statement on Schedule 14A for our 2022 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates (the “Proxy Statement”).

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11: EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by reference from our Proxy Statement.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required by this Item 12 is incorporated herein by reference from our Proxy Statement.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 is incorporated herein by reference from our Proxy Statement.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 is incorporated herein by reference from our Proxy Statement.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements
The following financial statements are included herein:
●
Report of Independent Registered Public Accounting Firm (PCAOB: 274)
● Consolidated Balance Sheets as of December 31, 2021 and 2020
● Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021 and 2020
● Consolidated Statements of Stockholders’ Equity - For the Years Ended December 31, 2021 and 2020
● Consolidated Statements of Cash Flows - For the Years Ended December 31, 2021 and 2020
● Notes to Consolidated Financial Statements
2. Exhibits
See Index to Exhibits