Item 7. Management’s Discussion and Analysis
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
The
following discussion and analysis of the results of operations and financial condition for the years ended December 31, 2022 and 2021
should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in
this Annual Report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those
anticipated in these forward-looking statements as a result of a number of factors. See “Forward-Looking Statements.”
Management’s
discussion and analysis of results of operations and financial condition (“MD&A”) is a supplement to the accompanying
condensed financial statements and provides additional information on BiondVax Pharamceutical Ltd.’s (“BiondVax” or
the “Company’) business, current developments, financial condition, cash flows and results of operations.
When
we say “we,” “us,” “our,” “Company,” or “BiondVax,” we mean BiondVax Pharmaceuticals
Ltd.
Overview
BiondVax
is a biopharmaceutical company focused on developing, manufacturing and commercializing innovative immunotherapeutic products primarily
for the treatment of infectious and autoimmune diseases. Since its inception, the Company has executed eight clinical trials including
a seven country, 12,400 participant phase 3 trial of its prior lead drug candidate, a universal influenza vaccine candidate (“M-001”),
and has built a GMP biologics manufacturing facility for biopharmaceutical products. While M-001 did not meet its clinical endpoints
and is no longer under development, the Company has developed a highly experienced pharmaceutical industry leadership team and built
its own fully equipped biotechnology drug manufacturing site. After receiving the phase 3 trial results in Q3 2020, the Company performed
a turnaround process, raised capital, hired new talent (including a new CEO) and in-licensed new intellectual property, and is in the
process of developing a pipeline of diversified and commercially viable products built around an innovative nanosized antibody (NanoAb)
platform collaboration. NanoAbs are nanosized antibodies derived from camelid animals and are also known as VHH-antibodies or Nanobodies.
“Nanobody” is a trademark registered by ABLYNX N.V., a wholly owned subsidiary of Sanofi. BiondVax has no affiliation with
and is not endorsed by Sanofi.
As
part of the abovementioned turnaround, on December 22, 2021, the Company signed a definitive exclusive, worldwide, License Agreement
(“LA”) with the Max Planck Society (“MPG”), the parent organization of the Max Planck Institute for Multidisciplinary
Sciences, and the University Medical Center Göttingen (“UMG”), both in Gottingen, Germany, for the development and commercialization
of innovative NanoAbs for the treatment of COVID-19. The agreement provides for an upfront payment, development and sales milestones
and royalties based on sales and sharing of sublicense revenues. In addition, the Company signed an accompanying Research Collaboration
Agreement (“aRCA”) with MPG and UMG in support of the abovementioned development of a COVID-19 NanoAb. The aRCA provides
for monthly payments to MPG and UMG and has a term until the earlier of two years or the date the Company enters into first in-human
clinical trials with the COVID-19 NanoAb.
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On
March 23, 2022, we signed a five-year Research Collaboration Agreement (“RCA”) with MPG and UMG covering the discovery, selection
and characterization of NanoAbs for up to nine molecular targets that have the potential to be further developed into drug candidates
for the treatment of disease indications such as psoriasis, psoriatic arthritis, asthma and wet macular degeneration. These are all large
and growing markets with underserved medical needs. In each case, the molecular target has been validated as an appropriate target for
therapeutic intervention through inhibition by an antibody, thereby significantly reducing the discovery work that typically entails
many years of research, high cost and high risk of failure. We believe that we can leverage our NanoAbs’ unique and strong binding
affinity, stability at high temperatures, and potential for more effective and convenient routes of administration towards competitive
commercial viability. We believe that since these are clinical validated targets, we can develop NanoAb treatments with reduced risk
and cost, and accelerate the time from NanoAb selection to initiation of clinical development. Each NanoAb candidate is therefore positioned
as a “biobetter” piggybacking on prior discoveries of others to mitigate risk but with significant potential advantages over
existing therapeutics. In addition, each NanoAb constitutes a novel molecule for which we file patent applications thereby creating a
proprietary position. BiondVax has the exclusive option for an exclusive, pre-negotiated worldwide license agreement for the development
and commercialization of each of the NanoAbs covered by the RCA with MPG and UMG.
We
lease approximately 1,850 square meters (20,000 square feet) in the Jerusalem BioPark, located in the Ein Kerem Hadassah campus, next
to Hadassah University Hospital and Hebrew University’s Medical School. The facility includes laboratories, offices, and upstream
and downstream manufacturing suites for bulk production and limited capacity for single-dose syringe filling. We also have infrastructure
to support future product manufacturing processes and equipment. The manufacturing facility features modular, single-use infrastructure,
which enables us to adapt the facility to various manufacturing platforms (such as, for example, fermenters or bioreactors).
Results
of Operations
Twelve Months Ended December 31, 2022 vs. Twelve Months Ended December
31, 2021
To
date, we have funded our operations primarily through (i) the sale of equity securities in both public and private offerings, (ii) a
rights offering, (iii) exercises of warrants issued in connection with our initial public offering in the U.S., (iv) funding received
from the IIA, and (iv) proceeds from the Finance Contract with the EIB. In February, 2021, December 2021, and December 2022 we raised
gross proceeds of approximately $13.8 million, $9.8 million, and $8 million respectively, in underwritten offerings of the ADSs (and,
in December 2022, two warrants to purchase ADSs for each ADS offered). As of December 31, 2022, we had $14 million of cash and cash equivalents
and short-term deposits.
We
expect that we will incur additional losses soon as a result of our research and development activities. Such research and development
activities will require us to obtain and expend further resources if we are to be successful. As a result, we expect to continue to incur
operating losses, and we may be required to obtain additional funds to further develop our research and development programs. As a result
of our research and development activities and our failure to generate revenues since our inception, among other things, our net loss
for the year ended December 31, 2022 was $5.7 million.
Operating
Expenses
Research
and development expenses . Our research and development expenses for the year ended December 31, 2022 amounted to $5.7
million, compared to $3.2 million for the year ended December 31, 2021.The increase of 2.5 million was primarily due to an increase of
salary and related expenses of $0.9 million, Max Plank related expense of $ 1 million and expenses related to the launch of COVID-19
NanoAb project of $0.6 million. Our research and development expenses consist primarily of salaries and related personnel expenses, fees
paid to consultants, patent-related legal fees, costs of preclinical studies and clinical studies, drug and laboratory supplies, and
costs for facilities and equipment. We charge all research and development expenses to operations as they are incurred. We expect our
research and development expenses to remain our primary expense in the near future. Increases or decreases in research and development
expenditures are attributable to the number and/or duration of the clinical studies that we conduct.
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We
expect that a large percentage of our research and development expenses in the future will be incurred in support of our future clinical
development projects. Due to the inherently unpredictable nature of clinical development processes, we are unable to estimate with any
certainty the costs we will incur. Clinical development timelines, the probability of success and development costs can differ materially
from expectations.
Our
future research and development expenses will depend on any Company product candidate’s commercial potential. As we obtain results
from clinical studies, we may elect to discontinue or delay clinical studies for any Company product candidate in certain indications
in order to focus our resources on more promising product candidates. Completion of clinical studies may take several years or more,
but the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate.
The
lengthy process of completing clinical studies and seeking regulatory approval for any Company product candidate requires the expenditure
of substantial resources. Any failure or delay in completing clinical studies, or in obtaining regulatory approvals, could cause a delay
in generating product revenue and cause our research and development expenses to increase and, in turn, have a material adverse effect
on our operations. Because of the risk factors set forth above in Item 1A, we are not able to estimate with any certainty when we would
recognize any net cash inflows from our projects.
Developing
bio-pharmaceutical vaccines and medicines, conducting clinical trials, obtaining commercial manufacturing capabilities and commercializing
products is expensive and we will need to raise substantial additional funds to achieve our strategic objectives. Although we believe
that our existing cash resources (inclusive of gross proceeds of approximately $8 million received by the Company from a public follow-on
offering completed in December 2022) will be sufficient to fund our projected cash requirements at current monthly rates for at least
the next 12 months, we will require significant additional financing in the future to fund our operations, including if and when we conduct
clinical trials, obtain regulatory approval and obtain commercial manufacturing capabilities for any Company product candidate and commercialize
such product candidates. Our future capital requirements will depend on many factors, including:
● the progress and costs of our clinical trials and other research
and development activities;
● the scope, prioritization and number of our clinical trials
and other research and development programs;
● the amount of revenues and contributions we receive under
future licensing, collaboration, development and commercialization arrangements with respect to our Company product candidates;
● the costs of the development and expansion of our operational
infrastructure;
● the costs and timing of obtaining regulatory approvals for
our Company product candidates;
● the ability of us, or our collaborators, to achieve development
milestones, marketing approvals and other events or developments under our potential future licensing agreements;
● the costs of filing, prosecuting, enforcing and defending
patent claims and other intellectual property rights;
● the costs and timing of building and securing manufacturing
arrangements for clinical or commercial production;
● the costs of contracting with third parties to provide sales
and marketing capabilities for us or establishing such capabilities ourselves;
● the costs of acquiring or undertaking development and commercialization
efforts for any Company product candidate or platforms;
● the magnitude of our general and administrative expenses;
and
● any cost that we may incur under future in- and out-licensing
arrangements relating to one or more of our Company product candidates.
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Until
we can generate significant recurring revenues, we expect to satisfy our future cash needs through the net proceeds received from future
private or public equity raising, grants from governmental agencies such as the IIA, debt or equity or other non-dilutive financings
such as the loan from EIB, among other financing mechanisms. We cannot be certain that additional funding will be available to us on
acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of or eliminate research or development
plans for, or commercialization efforts with respect to any Company product candidate.
Since
2006, we received $5.8 million in IIA grants and Euro 24 million ($25.6 million) in EIB loans.
Marketing,
General and Administrative Expenses:
Our
general and administrative expenses for the year ended December 31, 2022 amounted to $5.3 million, compared to $7.6 million for the year
ended December 31, 2021. The decrease was mostly due to share-based expense of $ 1.0 million, a decrease in salary and related expenses
of $0.25 million, a decrease of $0.5 million in professional expenses and a decrease of $0.5 million in the premium for directors and
officers liability insurance. Our general and administrative expenses consist primarily of salaries and expenses related to employee
benefits, including share-based compensation, for our general and administrative employees, which includes employees in executive and
operational roles, including finance and human resources, as well as consulting, legal and professional services related to our general
and administrative operations.
Net
Loss
As
a result of the foregoing research and development, marketing general and administrative expenses, other income (loss), and as we have
not yet generated revenues since our inception, our net loss for the year ended December 31, 2022 was $5.8 million, compared to our net
loss for the year ended December 31, 2021 of $8.2 million.
Liquidity
and Capital Resources
Since
our inception, we have funded our operations primarily through public and private offerings of our equity securities in Israel and the
U.S., grants from the OCS (today known as the IIA), grants received by the Israeli Ministry of Economy and European grants under the
UNISEC consortium and the loan from the EIB. Information regarding the outstanding loan from the EIB is set forth above in “ Research
and other Grants: Finance Contract - European Investment Bank.”
As
of December 31, 2022, we had cash and cash equivalents and short-term deposits of $14 million as compared to $17.3 million as of December
31, 2021. Our cash and cash equivalents are denominated in US dollars.
Net
cash used in operating activities was $7.3 million for the year ended December 31, 2022, compared with net cash used in operating activities
of $7.4 million for the year ended December 31, 2021.
Net
cash used by investing activities for the year ended December 31, 2022 was $2.2 million compared with net cash used by investing activities
of $0.13 million for the year ended December 31, 2021, and primarily reflects decrease in short term deposits of $1.4 million, increase
in purchase of fixed assets of $0.7. million, proceeds from sale of equipment and change in long term assets.
Net
cash provided by financing activities for the year ended December 31, 2022 was $6.7 million, mostly from gross proceeds from the underwritten
public offerings compared to $21.4 million as of December 31, 2021, mostly from proceeds from the exercise of warrants and from gross
proceeds from the underwritten public offerings in the U.S.
At
December 31, 2022, our accumulated deficit amounted to $115.8 million. We had working capital of $6.7 million as of December 31, 2022.
In the future, we may raise additional capital from external sources in order to continue the longer-term efforts contemplated under
our business plan. We expect to continue incurring losses for the foreseeable future and may need to raise additional capital to pursue
our product development initiatives, to penetrate markets for the sale of our Company product candidates and continue operations as presently
maintained. We cannot provide any assurance that we will raise additional capital. Our management believes that we have access to capital
resources through possible public or private equity offerings, debt financings, corporate collaborations or other means; however, we
have not secured any commitment for new financing at this time nor can we provide any assurance that new financing will be available
on commercially acceptable terms, if at all. If the economic climate in the U.S. deteriorates, our ability to raise additional capital
could be negatively impacted. If we are unable to secure additional capital, we may be required to curtail our research and development
initiatives and take additional measures to reduce costs in order to conserve cash in amounts sufficient to sustain operations and meet
our obligations. These measures could cause significant delays in our efforts to commercialize our products, which is critical to the
realization of our business plan and our future operations.
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On
February 2, 2021, the Company closed an underwritten offering in which it sold 2,434,783 ADSs at a public offering price of $4.95 per
ADS. On February 10, 2021, Aegis Capital Corp., the sole bookrunning manager for the underwritten offering, fully exercised its over-allotment
option to purchase an additional 365,217 ADSs, bringing total gross proceeds to the Company from the offering including exercise of the
over-allotment option of approximately $13.8 million. The Company received a net sum of $12.836 million and a net sum of $12.465 million
after deduction of issuance expenses.
On
December 29, 2021, the Company closed an underwritten offering in which it sold 4,144,068 ADSs at a public offering price of $2.36 per
ADS for total proceeds of approximately $9.780 million, including ADSs acquired upon the full exercise by Aegis Capital Corp., the sole
bookrunning manager for the underwritten offering, of its over-allotment option to purchase additional ADSs. The Company received a net
sum of $9.020 million and a net sum of $8.817 million after deduction of issuance expenses.
On
December 20, 2022, the Company closed an underwritten offering in which it sold 1,600,000 units and pre-funded units. Each unit consisted
of one ADS and two warrants, each to purchase one ADS, and each pre-funded unit consisted of one pre-funded warrant to purchase one ADS
and two warrants each to purchase one ADS. Each ADS (or pre-funded warrant) was sold together with two warrants at a combined purchase
price of $5.00 per unit (or $4.999 per pre-funded unit after reducing $0.001 attributable to the exercise price of the pre-funded warrants).
One of the warrants will expire three years from the date of issuance, and the other warrant will expire one year from the date of issuance
and may be exercised for half an ADS on or prior to six (6) months following the original issuance for no additional consideration. The
Company received a net sum of $7.3 million and a net sum of $7.2 million after deduction of issuance expenses.
Critical
Accounting Policies
The
preparation of financial statements and the related notes thereto included elsewhere in this annual report in conformity with U.S. GAAP
requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying
notes. The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information
available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities
at the dates of the financial statements, and the reported amount of expenses during the reporting periods. Actual results could differ
from those estimates.
We
believe that the following accounting policies involve a substantial degree of judgment and complexity, and accordingly, these are the
policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
See also note 2 to our financial statements included elsewhere in this annual report.
Impairment
of long-lived assets
The
Company’s long-lived assets are reviewed for impairment in accordance with ASC No. 360 “Property, Plant and Equipment,”
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment
exist and the undiscounted future cash flows that the assets are expected to generate are less than the carrying value of the assets,
the Company reduces the carrying amount of the assets through an impairment charge, to their estimated fair values. During the years
ended December 31, 2022 and 2021, no impairment indicators have been identified.
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Fair
value of financial instruments
The
accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands
disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to
transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance
establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
● Level
1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date
for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1
inputs.
● Level
2: Observable inputs that are based on inputs not quoted on active markets but corroborated
by market data.
● Level
3: Unobservable inputs are used when little or no market data are available.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We
are not required to provide the information required by this Item because we are a smaller reporting company.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our
financial statements are contained in pages F-1 through F-29 which appear at the end of this Annual Report on Form 10-K.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.