VIR BIOTECHNOLOGY, INC. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and the related Management's Discussion and Analysis of Financial Condition and Results of Operations included as part of our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the "Company", "Vir," "we," "us" and "our" refer toVir Biotechnology, Inc. and its consolidated subsidiaries.
Overview
We are a commercial-stage immunology company focused on combining immunologic insights with cutting-edge technologies to treat and prevent serious infectious diseases. Infectious diseases are among the leading causes of death worldwide and can cause trillions of dollars of direct and indirect economic burden each year - as evidenced by the coronavirus disease 2019, or COVID-19, pandemic. We believe that now is the time to apply the recent and remarkable advances in immunology to combat current and prepare for future infectious diseases. Our approach begins with identifying the limitations of the immune system in combating a particular pathogen, the vulnerabilities of that pathogen and the reasons why previous approaches have failed. We then bring to bear powerful technologies that we believe, individually or in combination, will lead to effective therapies. Our current pipeline consists of sotrovimab (previously VIR-7831; and where marketing authorization has been granted, marketed under the brand name Xevudy®) and other product candidates targeting COVID-19, hepatitis B virus, or HBV, hepatitis D virus, or HDV, influenza A virus, and human immunodeficiency virus, or HIV. We have assembled four technology platforms, focused on antibodies, T cells, innate immunity and small interfering ribonucleic acid, or siRNA, through internal development, collaborations and acquisitions. We have built an industry-leading team that has deep experience in immunology, infectious diseases, and product development and commercialization. Given the global impact of infectious diseases, we are committed to developing cost-effective treatments that can be delivered at scale.
COVID-19
Sotrovimab is an investigational severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, neutralizing monoclonal antibody, or mAb, that incorporates Xencor, Inc.'s, or Xencor, Xtend™ technology.
•
In the second quarter of 2022, approximately 265,000 sotrovimab doses were
delivered, all to countries outside of the
•
Sotrovimab currently has Emergency Use Authorization, or EUA, temporary
authorization or marketing approval (under the brand name Xevudy®?) in more than
40 countries, and remains in use outside of the
•
We andGlaxo Wellcome UK Limited andGlaxoSmithKline Biologicals S.A. , individually and collectively referred to as GSK, continue to conduct in vitro testing of sotrovimab against new variants and subvariants as they emerge and plan to submit data in the second half of 2022, including safety at a higher dose and real-world evidence, to regulatory authorities.
•
Due to the evolving COVID-19 landscape and based on discussions with theU.S. Food and Drug Administration , or FDA, we and GSK do not plan to file a Biologics License Application, or BLA, for sotrovimab at this time and do not intend to pursue theU.S. -based Phase 3 COMET-STAR prophylaxis trial. Discussions with the FDA remain ongoing regarding the appropriate path forward for sotrovimab in theU.S.
•
As part of the ongoing COVID-19 development plan for sotrovimab:
o
The PROTECT-V prophylaxis trial, a Phase 3 platform trial of sotrovimab
sponsored by Cambridge University Hospitals National Health Service, or
o
Sotrovimab is being evaluated at a 1g dose among patients hospitalized with
COVID-19 in the
VIR-7832 is an investigational vaccinal SARS-CoV-2-neutralizing mAb that
incorporates Xencor's Xtend and other Fc technologies. VIR-7832 shares the same
characteristics as sotrovimab and has been engineered to potentially be a
therapeutic T cell vaccine to further help treat and/or prevent COVID-19.
VIR-7832 is being evaluated in the Phase 2a portion of the
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NHS -supported AGILE initiative. To date, no safety signals have been reported in
the Phase 1b or 2a portions of the trial. Additional safety data from the Phase
1b portion of the trial are expected in the second half of 2022.
To prepare for new waves of variants and future pandemics, we and GSK continue
to actively pursue multiple next generation broadly neutralizing and highly
potent COVID-19 antibodies, leveraging our robust antibody platform, with the
aim of generating a pipeline of variant-proof antibodies as well as small
molecules aimed at treating COVID-19 and potentially other respiratory diseases.
Hepatitis B Virus (HBV) and Hepatitis D Virus (HDV)
VIR-2218 is an investigational HBV-targeting siRNA. VIR-3434 is an investigational HBV-neutralizing mAb that incorporates Xencor's Xtend and other Fc technologies.
•
In
o
Results from the Phase 2 monotherapy trial of VIR-2218 demonstrated that a six-dose regimen provided greater and more durable reductions in hepatitis B surface antigen, or HBsAg, than a two-dose regimen, with all participants achieving a >1 log10 IU/mL reduction during the trial.
o Results from the Phase 1 monotherapy trial of VIR-3434 demonstrated that a single dose (6 mg, 18 mg, 75 mg or 300 mg) resulted in a rapid reduction of HBsAg, with the largest and most durable response noted with the 300 mg dose. Pharmacokinetic analyses and HBsAg profiles support evaluation of monthly dosing of VIR-3434. o Preclinical in vivo data evaluating both VIR-2218 and VIR-3434 as monotherapy and in combination demonstrated that the combination of both compounds resulted in greater HBsAg and HBV DNA reductions than either alone.
•
InJune 2022 , the first patient was dosed in Part B of the Phase 2 Monoclonal Antibody siRNA Combination against Hepatitis B (MARCH) trial evaluating VIR-2218 in combination with VIR-3434 for 24 and 48 weeks, and in triple combination with VIR-3434 and interferon. Initial data are expected in the second half of 2023. Previously reported results from Part A suggested that VIR-2218 and VIR-3434 are additive in reducing HBsAg, with no drug-related safety signals reported to date. Additional data from Part A are expected later this year.
•
InJuly 2022 , Brii Biosciences Limited exercised its option to acquire exclusive development and commercialization rights to VIR-3434 inChina ,Hong Kong ,Macau , andTaiwan , providing us with an option exercise fee. Pending VIR-3434's development progression in these regions, we could receive future milestone payments and royalties.
•
Additional HBV events expected in 2022 include:
o
Additional data from the Phase 2 trial of VIR-2218 alone and in combination with PEG-IFN-?.
o Initial data from the Phase 2 trial led by Brii Biosciences Limited, or Brii Bio, evaluating VIR-2218 in combination with BRII-179, an investigational T cell vaccine, for the potential treatment of chronic HBV infection. o Initiation of a Phase 2 platform trial of VIR-2218 in combination with VIR-3434 in viremic patients (THRIVE/STRIVE sub-protocols), with initial data expected in the second half of 2023.
•
We expect to initiate a Phase 2 trial of VIR-2218 in combination with VIR-3434 for the treatment of chronic HDV infection called SOLSTICE in the second half of 2022, with initial data expected in 2023. Recent findings indicate that treatment approaches that reduce HBsAg production and block HDV entry into hepatocytes could provide an effective method for HDV management, thus supporting the investigation of the combination of VIR-3434 and VIR-2218 in this high unmet need disease. Influenza A virus
VIR-2482 is an investigational mAb designed for the prevention of influenza A that incorporates Xencor's Xtend technology.
•
Aligned with the start of the North American influenza season in the second half
of 2022, we expect to initiate a Phase 2 prophylaxis healthy volunteer trial
evaluating the safety and efficacy of two different doses of VIR-2482, an
intramuscularly administered influenza A-neutralizing monoclonal antibody, with
the aim to reduce the rate of infection. The primary efficacy endpoint is
confirmation of symptomatic influenza A illness with key secondary endpoints of
severity and duration of illness due to influenza A. Initial data are expected
in mid-2023.
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Also in the second half of 2022, we expect to initiate a Phase 1b prophylaxis trial evaluating the safety of VIR-2482 in elderly (>65 years old) participants who will receive a flu vaccine. This population is representative of our anticipated Phase 3 trial population. Initial data are expected in mid-2023.
HIV
VIR-1111 is an investigational HIV T cell vaccine based on human cytomegalovirus, or HCMV. Additional safety and immunology data from the proof-of-concept Phase 1 trial of VIR-1111, an HIV T cell vaccine based on HCMV, are expected in the second half of 2022. To date, no safety signals have been reported. Financial Overview We were incorporated inApril 2016 and commenced principal operations later that year. To date, we have focused primarily on organizing and staffing our company, business planning, raising capital, identifying, acquiring, developing and in-licensing our technology platforms and product candidates, and conducting preclinical studies and clinical trials. We have financed our operations primarily through sales of our common stock from our initial public offering, subsequent follow-on offering and convertible preferred securities, and payments received under our grant and collaboration agreements. As ofJune 30, 2022 , excluding restricted cash, we had$2.3 billion in cash, cash equivalents, and investments. Based upon our current operating plan, we believe that the$2.3 billion as ofJune 30, 2022 will enable us to fund our operations for at least the next 12 months. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional financing to fund our long-term operations sooner than planned. See the section titled "Liquidity, Capital Resources and Capital Requirements-Future Funding Requirements" below for additional information. Although we recorded net income for the year endedDecember 31, 2021 , and the six months endedJune 30, 2022 , we recorded a net loss for the three months endedJune 30, 2022 , and have otherwise incurred net losses since inception and may continue to incur net losses in the foreseeable future. To date, sotrovimab has been granted EUA, temporary authorization or marketing approval (under the brand name, Xevudy®) in more than 40 countries. Certain countries outside of theU.S. , such asCanada ,France andJapan , have maintained access to sotrovimab 500 mg IV while noting that it is unlikely to maintain efficacy against certain Omicron subvariants. Although we have an EUA from the FDA for sotrovimab, the FDA has excluded the use of sotrovimab in allU.S. regions due to the continued proportion of COVID-19 cases caused by certain Omicron subvariants. With this EUA revision, sotrovimab is not currently authorized for use in anyU.S. region. In light of these developments, we cannot predict whether (if at all) or to what extent sotrovimab may be reauthorized for use by the FDA in anyU.S. region in the future. Furthermore, due to the evolving COVID-19 landscape and based on recent discussions with the FDA, we and GSK do not plan to file a BLA for sotrovimab at this time. We have not obtained regulatory approval for any other product candidates, and we do not expect to generate significant revenue from the sale of our other product candidates until we complete clinical development, submit regulatory filings and receive approvals from the applicable regulatory bodies for such product candidates, if ever. We had net income of$442.1 million and net loss of$107.1 million for the six months endedJune 30, 2022 and 2021, respectively. As ofJune 30, 2022 , we had retained earnings of$303.5 million . Our primary use of our capital resources is to fund our operating expenses, which consist primarily of expenditures related to identifying, acquiring, developing, manufacturing and in-licensing our technology platforms and product candidates, and conducting preclinical studies and clinical trials, and to a lesser extent, selling, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. Although we began recognizing revenue for sotrovimab and have substantial deferred revenue under our definitive collaboration agreement with GSK executed inMay 2021 , or the 2021 GSK Agreement, we may continue to incur net operating losses for at least the next several years as the extent of future revenue remains uncertain. In particular, we expect our expenses and losses to increase as we continue our research and development efforts, advance our product candidates through preclinical and clinical development, seek regulatory approval, and prepare for commercialization, as well as hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company. We also expect to increase the size of our administrative functions to support the growth of our business. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities. We are currently manufacturing product candidates from three of our platforms: antibodies, T cells and siRNAs. We have established our own internal process development, manufacturing and quality capabilities and are working with contract development and manufacturing organizations, or CDMOs, to supply our early- and late-stage product candidates in the near term. We continue to expand our internal capabilities and resources in process development, analytical development, quality, manufacturing and supply chain, which are supported by ourSan Francisco, California , andPortland, Oregon facilities that include laboratories for process development, production of HCMV research viral seed stock and selected quality control testing for our product candidates. We have established relationships with multiple CDMOs and have produced material to support preclinical studies and Phase 1 through Phase 3 clinical trials. Material for Phase 3 clinical trials and commercial supply will generally require large-volume, low-cost-of-goods 35 -------------------------------------------------------------------------------- production. For example, for our COVID-19 program, we and our collaborator GSK have executed manufacturing agreements with CDMOs having large-scale capacity to support future scale-up and product supply, particularly for potential commercialization.
COVID-19 Business Update
We have implemented a number of plans and policies designed to address and mitigate the impact of the ongoing COVID-19 pandemic on our employees and our business. We continue to closely monitor the COVID-19 situation and will evolve our plans and policies as needed going forward. As a result of these developments, inMarch 2020 , we implemented work-from-home policies for most of our employees. InApril 2022 , we reopened our offices to allow employees to return to work. Although the reopening of our offices is consistent with local government requirements, is focused on employee safety, and contemplates returning to remote work should the COVID-19 requirements change, there is uncertainty regarding the recent reopening, which may be rolled back, and restrictions re-implemented. We are also working to provide our employees with the support they need to ensure continuity of business operations. We are working closely with our CDMOs to manage our supply chain activities and mitigate any potential disruptions to our clinical trial supplies as a result of the COVID-19 pandemic. However, there are no assurances that our manufacturing and supply chain infrastructure will remain uninterrupted and reliable, or that the CDMOs will be able to satisfy demand in a timely manner and not have supply chain disruptions due to COVID-19 related shutdowns, stock-outs due to raw material shortages and/or greater than anticipated demand or quality issues given the operational challenges and raw material shortages that have been experienced during the COVID-19 pandemic. For some of our clinical development programs, we are experiencing, and may continue to experience, a disruption or delay in our ability to initiate trial sites and enroll and assess patients. In addition, we rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic.
Our Collaboration, License and Grant Agreements
We have entered into collaboration, license and grant arrangements with various third parties. For details regarding these and other agreements, see Note 5-Grant Agreements and Note 6-Collaboration and License Agreements to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Components of Operating Results
Revenues
To date, sotrovimab has been granted EUA, temporary authorization or marketing approval (under the brand name, Xevudy®) in more than 40 countries. Certain countries outside of theU.S. , such asCanada ,France andJapan , have maintained access to sotrovimab 500 mg IV while noting that it is unlikely to maintain efficacy against certain Omicron subvariants. Although we have previously recognized revenue from our profit-share under our definitive collaboration agreement with GSK executed inJune 2020 , or the 2020 GSK Agreement, related to sotrovimab, we may continue to incur net operating losses for at least the next several years as the extent of future revenue from the sale of sotrovimab remains uncertain. Although we have an EUA from the FDA for sotrovimab, the FDA has excluded the use of sotrovimab in allU.S. regions due to the continued proportion of COVID-19 cases caused by certain Omicron subvariants. With this EUA revision, sotrovimab is not currently authorized for use in anyU.S. region. In addition, due to the evolving COVID-19 landscape and based on recent discussions with the FDA, we and GSK do not plan to file a BLA for sotrovimab at this time. In light of these developments, we cannot predict whether (if at all) or to what extent sotrovimab may be reauthorized for use by the FDA in anyU.S. region in the future. In addition, we have not obtained regulatory approval for any other product candidates, and we do not expect to generate any significant revenue from the sale of our other product candidates until we complete clinical development, submit regulatory filings and receive approvals from the applicable regulatory bodies for such product candidates, if ever.
Our revenues consist of the following:
Collaboration revenue includes recognition of our profit-share from the sales of sotrovimab pursuant to the 2020 GSK Agreement. Our contractual share of 72.5% from the sales of sotrovimab is applied to the net sales reported in the period by GSK, net of cost of goods sold and allowable expenses from both GSK and us (e.g., manufacturing, distribution, medical affairs, selling, and marketing expenses). In order to record collaboration revenue, we utilize certain information from our collaboration partner, including actual net product sales and costs incurred for sales activities, and make key judgments based on business updates related to commercial and clinical activities such as expected commercial demand, commercial supply plan, manufacturing commitments, risks related to expired or obsolete inventories, and risks related to potential product returns or contract terminations.
Constraint on variable consideration
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In May 2021 , the FDA granted an EUA in the U.S. for sotrovimab. In April 2022 ,
the FDA excluded the use of sotrovimab in all U.S. regions due to the continued
proportion of COVID-19 cases caused by certain Omicron subvariants. As the lead
party for all manufacturing and commercialization activities, GSK incurs all of
the manufacturing, sales and marketing expenses and is the principal on sales
transactions with third parties. Our accounting policy related to the
profit-share is to consider the agreed-upon share of the profit-sharing amounts
each quarter and evaluate whether those amounts are subject to potential future
adjustments based on the latest available facts and circumstances, subject to
the terms of the 2020 GSK Agreement.
As we are the agent under the 2020 GSK Agreement, we recognize our contractual
share of the profit-sharing amounts or royalties (in case of an opt-out) as
revenue, based on sales net of estimated various deductions such as rebates,
discounts, chargebacks, credits and returns, less cost of sales and allowable
expenses (including manufacturing, distribution, medical affairs, selling, and
marketing expenses) in the period the sale occurs. Manufacturing costs include
inventory revaluation adjustments, lower of cost or market inventory
adjustments, inventory write-downs and write-offs, and binding purchase
commitments with a third-party manufacturer among other manufacturing costs. Our
contractual share of the profit-sharing amounts is subject to potential future
adjustments to allowable expenses, which we account for as a form of variable
consideration.
As of June 30, 2022 , GSK held certain potentially excess binding supply
manufacturing commitments of sotrovimab and reserved certain binding
manufacturing capacity potentially not expected to be utilized, which have not
yet been reported to us as allowable manufacturing expenses for the cumulative
profit-sharing amounts to date. We expect GSK to adjust allowable manufacturing
expenses for our share of the potential charge for excess supply write-offs and
unused binding manufacturing capacity and report to us as cost-sharing amounts
in future periods. We evaluated the latest available facts and circumstances to
determine whether any portion of profit-sharing amounts should be constrained.
In doing so, as of June 30, 2022 , based on the current state of the COVID-19
pandemic, including the continued proportion of cases caused by certain Omicron
subvariants, recent discussions with the FDA and other regulatory authorities,
and our expectations for future sales in light of these factors, we estimated
that $397.4 million should be constrained from profit-sharing revenues earned
during the quarter in relation to the Company's anticipated contractual share of
potential future adjustments to manufacturing expenses and recorded such amount
as adjustments to profit-sharing amounts and accrued and other liabilities. We
will re-assess these estimates each reporting period. Actual results could
materially differ from this estimate.
Contract revenue includes recognition of revenue generated from license rights
issued to GSK, from research and development services under other third-party
contracts, and from a clinical supply agreement with Brii Bio.
Grant revenue is comprised of revenue derived from grant agreements with government-sponsored and private organizations.
Operating Expenses
Cost of Revenue
Cost of revenue currently represents royalties earned by third-party licensors on net sales of sotrovimab by us or our collaborators. We recognize these royalties as cost of revenue when we recognize the corresponding revenue that gives rise to payments due to our licensors.
Research and Development
To date, our research and development expenses have related primarily to discovery efforts and preclinical and clinical development of our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. We do not track research and development expenses by product candidate.
Research and development expenses consist primarily of costs incurred for our product candidates in development and prior to regulatory approval, which include:
•
expenses related to license and collaboration agreements, and change in fair value of certain contingent consideration obligations arising from business acquisitions;
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personnel-related expenses, including salaries, benefits and stock-based compensation for personnel contributing to research and development activities;
•
expenses incurred under agreements with third-party contract manufacturing organizations, contract research organizations, and consultants;
•
clinical costs, including laboratory supplies and costs related to compliance with regulatory requirements; and
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other allocated expenses, including expenses for rent and facilities maintenance, and depreciation and amortization.
We expect our research and development expenses to increase substantially in absolute dollars for the foreseeable future as we advance our product candidates into and through preclinical studies and clinical trials and pursue regulatory approval of our product candidates. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates may be affected by a variety of factors including: the safety and efficacy of our product candidates, early clinical data, investment in our clinical programs, the ability of collaborators to successfully develop our licensed product candidates, competition, manufacturing capability and commercial viability. To date, sotrovimab has been granted EUA, temporary authorization or marketing approval (under the brand name, Xevudy®) in more than 40 countries. Certain countries outside of theU.S. , such asCanada ,France andJapan , have maintained access to sotrovimab 500 mg IV while noting that it is unlikely to maintain efficacy against certain Omicron subvariants. Although we have an EUA from the FDA for sotrovimab, the FDA has excluded the use of sotrovimab in allU.S. regions due to the continued proportion of COVID-19 cases caused by certain Omicron subvariants. With this EUA revision, sotrovimab is not currently authorized for use in anyU.S. region. In light of these developments, we cannot predict whether (if at all) or to what extent sotrovimab may be reauthorized for use by the FDA in anyU.S. region in the future. In addition, due to the evolving COVID-19 landscape and based on recent discussions with the FDA, we and GSK do not plan to file a BLA for sotrovimab at this time. Furthermore, COVID-19 treatment standards are susceptible to rapid changes in epidemiology and the emergence of new variants or subvariants, which may render sotrovimab inferior or obsolete in the future. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate significant revenue from the commercialization and sale of any of our product candidates. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments, our ongoing assessments as to each product candidate's commercial potential and the impact of public health epidemics, such as the COVID-19 pandemic. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. 38 --------------------------------------------------------------------------------
Our clinical development costs may vary significantly based on factors such as:
•
whether a collaborator is paying for some or all of the costs;
•
per patient trial costs;
•
the number of trials required for approval;
•
the number of sites included in the trials;
•
enrollment and retention of patients in trials in countries disrupted by
geopolitical events, including civil or political unrest (such as the ongoing
war between
•
the length of time required to enroll eligible patients;
•
the number of patients that participate in the trials;
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the number of doses that patients receive;
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the drop-out or discontinuation rates of patients;
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potential additional safety monitoring requested by regulatory agencies;
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the duration of patient participation in the trials and follow-up;
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the cost and timing of manufacturing our product candidates;
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the phase of development of our product candidates; and
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the efficacy and safety profile of our product candidates.
Selling, General and Administrative
Our selling, general and administrative expenses consist primarily of personnel-related expenses for personnel in executive, finance and other administrative functions, facilities and other allocated expenses, other expenses for outside professional services, including legal, audit and accounting services, insurance costs and change in fair value of certain contingent consideration obligations arising from business acquisitions. Personnel-related expenses consist of salaries, benefits and stock-based compensation.
We expect our selling, general and administrative expenses to increase substantially in absolute dollars in the foreseeable future as we continue to support our continued research and development activities, and commercialization activities for any of our product candidates, if approved, and to grow our business. We also anticipate incurring additional expenses associated with operating as a public company, including increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with the rules and regulations of theSecurities and Exchange Commission , orSEC , and standards applicable to companies listed on a national securities exchange, additional insurance expenses, investor relations activities and other administrative and professional services.
Change in Fair Value of Equity Investments
Change in fair value of equity investments consists of the remeasurement of our investment in Brii Biosciences Limited's, orBrii Bio Parent , ordinary shares based on the quoted market price at each reporting date.
Interest Income
Interest income consists of interest earned on our cash, cash equivalents and investments.
Other Income (Expense), Net Other income (expense), net consists of gains and losses from foreign currency transactions and the remeasurement of contingent consideration related to our acquisition ofTomegaVax, Inc. , orTomegaVax .
Provision for Income Taxes
Provision for income taxes consisted primarily of income tax on our domestic and foreign operations.
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Comparison of the Three and Six Months Ended
The following table summarizes our results of operations for the periods presented:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
(in thousands)
Revenue:
Collaboration revenue $ (54,941 ) $ 5,333 $ (60,274 ) $ 1,174,715 $ 5,333 $ 1,169,382
Contract revenue 12,254 168,653 (156,399 ) 12,536 169,266 (156,730 )
Grant revenue 2,058 3,082 (1,024 ) 4,579 4,453 126
Total revenue (40,629 ) 177,068 (217,697 ) 1,191,830 179,052 1,012,778
Operating expenses:
Cost of revenue 27,921 1,144 26,777 118,070 1,152 116,918
Research and
development 115,082 86,126 28,956 205,309 220,996 (15,687 )
Selling, general and
administrative 41,590 28,781 12,809 79,845 54,520 25,325
Total operating
expenses 184,593 116,051 68,542 403,224 276,668 126,556
Income (loss) from
operations (225,222 ) 61,017 (286,239 ) 788,606 (97,616 ) 886,222
Other income
(expense):
Change in fair value
of equity investments (11,390 ) - (11,390 ) (106,429 ) - (106,429 )
Interest income 2,200 97 2,103 2,588 261 2,327
Other income
(expense), net 691 752 (61 ) 3,421 (9,494 ) 12,915
Total other (expense)
income (8,499 ) 849 (9,348 ) (100,420 ) (9,233 ) (91,187 )
(Loss) income before
provision for income
taxes (233,721 ) 61,866 (295,587 ) 688,186 (106,849 ) 795,035
Benefit from
(provision for)
income taxes 157,228 (53 ) 157,281 (246,058 ) (249 ) (245,809 )
Net (loss) income $ (76,493 ) $ 61,813 $ (138,306 ) $ 442,128 $ (107,098 ) $ 549,226
Revenues
The decrease in collaboration revenue for the three months ended June 30, 2022
compared to the same period in 2021 was due to $397.4 million of profit-sharing
amount constrained, partially offset by $342.5 million of profit-sharing amount
for the sale of sotrovimab under the 2020 GSK Agreement. The increase in
collaboration revenue for the six months ended June 30, 2022 compared to the
same period in 2021 was due to $1.6 billion of profit-sharing amount for the
sale of sotrovimab under the 2020 GSK Agreement, partially offset by $397.4
million of profit-sharing amount constrained. Our contractual share of 72.5%
from the sales of sotrovimab is applied to the profit-sharing amounts, based on
sales net of various estimated deductions such as rebates, discounts,
chargebacks, credits and returns, less cost of sales and allowable expenses
(including manufacturing, distribution, medical affairs, selling, and marketing
expenses) in the period the sale occurs.
The decrease in contract revenue for the three and six months ended June 30,
2022 compared to the same periods in 2021 was primarily due to $168.3 million
related to the license granted to GSK upon execution of the 2021 GSK Agreement
in the second quarter of 2021, partially offset by $7.0 million related to the
additional license granted to GSK applicable in mainland China , Hong Kong , Macau
and Taiwan upon execution of the Amendment No. 1 to the 2020 GSK Agreement in
the second quarter of 2022.
The decrease in grant revenue for the three months ended June 30, 2022 compared
to the same period in 2021 was primarily due to the timing of research
activities under the grant agreements with the Bill & Melinda Gates Foundation .
The increase in grant revenue for the six months ended June 30, 2022 compared to
the same period in 2021 was not material.
Cost of Revenue
The increase in cost of revenue for the three and six months endedJune 30, 2022 compared to the same periods in 2021 was due to third-party royalties owed based on the sales of sotrovimab under the 2020 GSK Agreement. 40 --------------------------------------------------------------------------------
Research and Development Expenses
The following table shows the primary components of our research and development expenses for the periods presented:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
(in thousands)
Licenses, collaborations
and contingent
consideration $ 27,907 $ 18,058 $ 9,849 $ 35,063 $ 71,071 $ (36,008 )
Personnel 39,112 28,025 11,087 77,846 53,828 24,018
Contract manufacturing 9,232 4,322 4,910 16,558 15,642 916
Clinical costs 15,224 16,413 (1,189 ) 31,903 46,147 (14,244 )
Other 23,607 19,308 4,299 43,939 34,308 9,631
Total research and
development expenses $ 115,082 $ 86,126 $ 28,956 $ 205,309 $ 220,996 $ (15,687 ) Comparison of three months ended
The increase in research and development expenses for the three months ended
•
personnel-related expenses increased by
•
licenses, collaborations and contingent consideration expenses increased by$9.8 million compared to the same period in 2021, which was primarily attributable to an increase of$10.8 million related to the change in fair value of the contingent consideration from our acquisition ofHumabs Biomed SA , or Humabs,$7.0 million recognized in connection with the termination of our development and manufacturing collaboration agreement with WuXi Biologics (Hong Kong ) Limited, or WuXi Biologics, partially offset by decrease of$7.7 million in costs under our collaboration arrangements with GSK and other R&D collaborators;
•
contract manufacturing expenses increased by
•
other research and development expenses increased by$4.3 million , which was primarily attributable to the allocation of facilities and other costs due to an increase in our headcount and higher lease expense; partially offset by
•
a decrease of$1.2 million in clinical costs, which was primarily attributable to activities related to the clinical trials for sotrovimab in the prior period, partially offset by activities related to VIR-3434 clinical trials in the second quarter of 2022.
Comparison of six months ended
The decrease in research and development expenses for the six months endedJune 30, 2022 compared to the same period in 2021 was primarily due to the following factors:
•
licenses, collaborations and contingent consideration expenses decreased by$36.0 million , which was primarily attributable to a decrease of$24.3 million related to the change in fair value of the contingent consideration from our acquisition of Humabs, and a decrease of$21.8 million in costs under our collaboration agreements with GSK, partially offset by$7.0 million recognized in connection with the termination of our development and manufacturing collaboration agreement with WuXi Biologics (Hong Kong ) Limited, or WuXi Biologics;
•
clinical costs decreased by$14.2 million , which was primarily attributable to activities related to the clinical trials for sotrovimab in the prior period; partially offset by
•
an increase of
•
an increase of
•
an increase of$9.6 million in other research and development expenses, which was primarily attributable to the allocation of facilities and other costs due to an increase in our headcount and higher lease expense. 41 --------------------------------------------------------------------------------
Selling, General and Administrative Expenses
The increases in selling, general and administrative expenses for the three and six months endedJune 30, 2022 compared to the same periods in 2021 were primarily due to higher personnel-related expenses related to additional headcount, external consulting services, business tax expenses related to increased profit-sharing amount and allocated facilities costs due to higher lease expense.
Change in Fair Value of Equity Investments
InJuly 2021 ,Brii Bio Parent became a publicly traded company on theStock Exchange of Hong Kong Limited . In connection with the initial public offering, our investment in shares ofBrii Bio Parent became a marketable equity investment and subsequently remeasured to fair value at each reporting period. For the three and six months endedJune 30, 2022 , we recognized an unrealized loss of$11.4 million and$106.4 million , respectively, due to the change in fair value of the equity investment. No comparable amount was incurred for the same periods in 2021. Interest Income The increases in interest income were primarily due to higher interest rates, partially offset by higher amortization of premium on investment balances, in the three and six months endedJune 30, 2022 compared to the same periods in 2021.
Other Income (Expense), Net
The decrease in other income (expense), net for the three months ended
The decrease in other income (expense), net for the six months endedJune 30, 2022 compared to the same period in 2021 was primarily related to the change in fair value of the contingent consideration related to our acquisition ofTomegaVax .
Provision and Benefit from Income Taxes
The increase in benefit from income taxes for the three months endedJune 30, 2022 compared to the same period in 2021 was primarily due to pre-tax book loss and decrease in estimated 2022 annual effective tax rate. The increase in provision for income taxes for the six months endedJune 30, 2022 compared to the same period in 2021 was primarily due to taxable income for 2022 attributable to significant collaboration revenue from the sale of sotrovimab and the requirement under the Tax Cuts and Jobs Act of 2017 for taxpayers to capitalize and amortize research and development expenditures over five or fifteen years pursuant to Section 174 of the Internal Revenue Code of 1986, as amended.
Liquidity, Capital Resources and Capital Requirements
Sources of Liquidity
To date, we have financed our operations primarily through sales of our common stock from our initial public offering and subsequent follow-on offering; sales of our convertible preferred securities; and payments received under our grant and collaboration agreements. As ofJune 30, 2022 , excluding restricted cash, we had$2.3 billion in cash, cash equivalents, and investments. As ofJune 30, 2022 , we had retained earnings of$303.5 million . We entered into a sales agreement, or the Sales Agreement, withCowen and Company, LLC , or Cowen, in 2020 pursuant to which we may from time to time offer and sell shares of our common stock for an aggregate offering price of up to$300.0 million , through or to Cowen, acting as sales agent or principal. We will pay Cowen a commission of up to 3.0% of the aggregate gross proceeds from each sale of shares, reimburse legal fees and disbursements and provide Cowen with customary indemnification and contribution rights. As ofJune 30, 2022 , no shares have been issued under the Sales Agreement. Our primary use of our capital resources is to fund our operating expenses, which consist primarily of expenditures related to identifying, acquiring, developing, manufacturing and in-licensing our technology platforms and product candidates, and conducting preclinical studies and clinical trials, and to a lesser extent, selling, general and administrative expenditures. 42 --------------------------------------------------------------------------------
Future Funding Requirements
Based upon our current operating plan, we believe that our existing cash, cash equivalents and investments as ofJune 30, 2022 as noted above will enable us to fund our operations for at least the next 12 months. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional financing to fund our long-term operations sooner than planned. Moreover, it is particularly difficult to estimate with certainty our future revenue and expenses given the dynamic and rapidly evolving nature of our business and the COVID-19 pandemic environment generally. For example, in March andApril 2022 , the FDA amended the EUA fact sheet to exclude sotrovimab use in geographic regions where infection is likely to have been caused by a non-susceptible SARS-CoV-2 variant based on available information, including variant susceptibility to these drugs and regional variant frequency. With these EUA revisions, sotrovimab is not currently authorized for use in anyU.S. region. In light of these developments, we cannot predict whether (if at all) or to what extent sotrovimab may be reauthorized for use by the FDA in anyU.S. region in the future. In addition, due to the evolving COVID-19 landscape and based on recent discussions with the FDA, we and GSK do not plan to file a BLA for sotrovimab at this time. It is possible that the FDA and other regulatory authorities may not grant sotrovimab full marketing approval for the treatment of COVID-19, or that any such marketing approvals, if granted, may have similar or other significant limitations on its use. We may also need to raise additional capital to complete the development and commercialization of our product candidates and fund certain of our existing manufacturing and other commitments. We expect to finance our cash needs through public or private equity or debt financings, third-party (including government) funding and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, licenses and other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. There can be no assurance that sufficient funds will be available to us on attractive terms or at all. If we are unable to obtain additional funding from these or other sources, it may be necessary to significantly reduce our rate of spending through reductions in staff and delaying, scaling back, or stopping certain research and development programs. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. In addition, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make other important, opportunistic investments. Market volatility, inflation, interest rate fluctuations and concerns related to the COVID-19 pandemic and geopolitical events, including civil or political unrest (such as the ongoing war betweenUkraine andRussia ), may have a significant impact on the availability of funding sources and the terms on which any funding may be available. We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of biotechnology products, we are unable to estimate the exact amount of our operating capital requirements. See the section titled "Risk Factors-Risks Related to Our Financial Position and Capital Needs" for a description of certain risks that will affect our future capital requirements. We have various operating lease arrangements for office and laboratory spaces located inCalifornia ,Oregon ,Missouri andSwitzerland with contractual lease periods expiring between 2022 and 2033. As ofJune 30, 2022 , we expect to make total lease payments of$183.0 million through 2033. To date, we have entered into collaboration, license and acquisition agreements where the payment obligations are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones, and we are required to make royalty payments in connection with the sale of products developed under those agreements. For additional information regarding these agreements, including our payment obligations thereunder, see Note 4-Acquisitions and Note 6-Collaboration and License Agreements to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. For information related to our future commitments under our facilities and manufacturing agreements, see Note 8-Commitments and Contingencies to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.
43
--------------------------------------------------------------------------------Cash Flows
The following table summarizes our cash flows for the periods indicated:
Six Months Ended June 30,
2022 2021
(in thousands)
Net cash provided by (used in):
Operating activities $ 1,510,225 $ 50,529
Investing activities (377,721 ) 162,909
Financing activities 30,765 91,032Net increase in cash and cash equivalents and restricted
cash and cash equivalents$ 1,163,269 $ 304,470 Operating Activities During the six months endedJune 30, 2022 , net cash provided by operating activities was$1.5 billion . This consisted primarily of net income of$442.1 million , non-cash charges of$477.5 million , and an increase in our net operating assets of$590.5 million . The change in our net operating assets of$590.5 million was primarily due to a decrease in collaboration receivable by$433.7 million resulting from our profit-share from the sale of sotrovimab, an increase in accrued liabilities and other long-term liabilities by$145.4 million due to timing of payments and an increase in deferred revenue by$15.6 million primarily driven by the grants received fromBill & Melinda Gates Foundation . The non-cash charges of$477.5 million primarily consisted of$397.4 million for change in estimated constraint on profit-sharing amount, an unrealized loss of$106.4 million on our equity investment,$52.4 million for stock-based compensation expense,$5.6 million for revaluation of contingent consideration,$4.3 million for noncash lease expense and$2.9 million for depreciation and amortization expense, partially offset by$93.8 million for payment for contingent consideration in excess of acquisition date fair value. During the six months endedJune 30, 2021 , net cash used in operating activities was$50.5 million . This consisted primarily of a net loss of$107.1 million , partially offset by a decrease in our net operating assets of$72.7 million and non-cash charges of$85.0 million . The change in our net operating assets of$72.7 million was primarily due to an increase in deferred revenue by$90.5 million driven by the upfront fee received under the 2021 GSK Agreement, and increase in accounts payable by$4.9 million , which was partially offset by decreases in accrued liabilities and other long-term liabilities by$22.3 million due to timing of payments. The non-cash charges of$85.0 million primarily consisted of$42.9 million for revaluation of contingent consideration,$36.5 million for stock-based compensation expense, and$2.5 million for depreciation and amortization.
Investing Activities
During the six months ended
During the six months endedJune 30, 2021 , net cash provided by investing activities was$162.9 million . This consisted primarily of$221.4 million in proceeds received from investments which matured during the period, partially offset by purchases of investments of$55.7 million and property and equipment of$2.7 million . Financing Activities During the six months endedJune 30, 2022 , net cash provided by financing activities was$30.8 million . This consisted primarily of proceeds from the issuance of our common stock to theBill & Melinda Gates Foundation of$28.5 million under the stock purchase agreement, from issuance of common stock under our employee stock purchase plan of$2.1 million , and from exercises of stock options of$1.6 million , partially offset by$1.2 million for payment of contingent consideration. During the three and six months endedJune 30, 2021 , net cash provided by financing activities was$91.0 million . This consisted primarily of proceeds received from the issuance of our common stock toGlaxo Group Limited of$85.2 million inMarch 2021 and from exercises of stock options of$5.9 million . 44 --------------------------------------------------------------------------------
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe United States . The preparation of our unaudited condensed consolidated financial statements requires us to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
There have been no significant changes in our critical accounting policies
during the six months ended
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