10-Q 1 vir-20230930.htm 10-Q vir-20230930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________________________________________________
FORM 10-Q
__________________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________to
Commission File Number: 001-39083
__________________________________________________
Vir Biotechnology, Inc.
(Exact Name of Registrant as Specified in Its Charter)
__________________________________________________
Delaware81-2730369
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
1800 Owens Street, Suite 900, San Francisco, California
94158
(Address of Principal Executive Offices)(Zip Code)
Registrant’s Telephone Number, Including Area Code: (415) 906-4324
__________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.0001 per shareVIR
Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of October 27, 2023, the registrant had 134,521,285 shares of common stock, $0.0001 par value per share, outstanding.


Table of Contents
Page
1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future financial condition, future operations, research and development, potential of, and expectations for, our pipeline, planned clinical trials and preclinical studies, technology platforms, the timing and likelihood of regulatory filings and approvals for our product candidates, our ability to commercialize our product candidates, the potential benefits of collaborations, projected costs, prospects, plans, objectives of management, expected market growth, the timing of availability of clinical data, program updates and data disclosures, and our plans for our hepatitis B virus, hepatitis delta virus, influenza, COVID-19 and human immunodeficiency virus portfolios are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “potential,” “predict,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions described in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report. Other sections of this report may include additional factors that could harm our business and financial performance. Drug development and commercialization involve a high degree of risk, and only a small number of research and development programs result in commercialization of a product. Results in early-stage clinical trials may not be indicative of full results or results from later stage or larger scale clinical trials and do not ensure regulatory approval. You should not place undue reliance on these statements, or the scientific data presented. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.
In light of the significant uncertainties in these forward-looking statements, you should not rely upon forward-looking statements as predictions of future events. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. You should refer to the section titled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
2

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
VIR BIOTECHNOLOGY, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
September 30,
2023
December 31,
2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$452,100 $848,631 
Short-term investments1,233,628 1,521,517 
Restricted cash and cash equivalents, current13,193 12,681 
Equity investments10,825 31,892 
Prepaid expenses and other current assets59,430 104,356 
Total current assets1,769,176 2,519,077 
Intangible assets, net25,457 32,755 
Goodwill16,937 16,937 
Property and equipment, net99,309 105,609 
Operating lease right-of-use assets72,622 82,557 
Restricted cash and cash equivalents, noncurrent7,057 6,656 
Long-term investments39,617 23,927 
Other assets14,720 14,570 
TOTAL ASSETS$2,044,895 $2,802,088 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable$3,627 $6,422 
Accrued and other liabilities146,111 489,090 
Deferred revenue, current15,312 15,517 
Total current liabilities165,050 511,029 
Deferred revenue, noncurrent53,207 53,207 
Operating lease liabilities, noncurrent114,119 123,837 
Contingent consideration, noncurrent24,300 24,937 
Other long-term liabilities13,134 11,115 
TOTAL LIABILITIES369,810 724,125 
Commitments and contingencies (Note 7)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of September 30, 2023 and December 31, 2022; no shares issued and outstanding as of September 30, 2023 and December 31, 2022
  
Common stock, $0.0001 par value; 300,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 134,497,886 and 133,236,687 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
13 13 
Additional paid-in capital1,798,823 1,709,835 
Accumulated other comprehensive loss(1,900)(9,122)
(Accumulated deficit) retained earnings(121,851)377,237 
TOTAL STOCKHOLDERS’ EQUITY1,675,085 2,077,963 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$2,044,895 $2,802,088 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

VIR BIOTECHNOLOGY, INC.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Revenues:
Collaboration revenue$(4,387)$309,145 $28,408 $1,483,860 
Contract revenue289 39,998 1,484 52,534 
License revenue from a related party 22,289  22,289 
Grant revenue6,737 3,125 39,501 7,704 
Total revenues2,639 374,557 69,393 1,566,387 
Operating expenses:
Cost of revenue38 22,253 1,967 140,323 
Research and development148,253 114,166 477,756 319,475 
Selling, general and administrative41,080 43,174 134,959 123,019 
Total operating expenses189,371 179,593 614,682 582,817 
(Loss) income from operations(186,732)194,964 (545,289)983,570 
Other income (expense):
Change in fair value of equity investments(2,707)(13,590)(20,896)(120,019)
Interest income21,931 9,332 66,254 11,920 
Other income (expense), net882 27,026 (7,506)30,447 
Total other income (expense)20,106 22,768 37,852 (77,652)
(Loss) income before benefit from (provision for) income taxes(166,626)217,732 (507,437)905,918 
Benefit from (provision for) income taxes3,213 (42,420)8,293 (288,478)
Net (loss) income$(163,413)$175,312 $(499,144)$617,440 
Net loss attributable to noncontrolling interest$ $ $(56)$ 
Net (loss) income attributable to Vir$(163,413)$175,312 $(499,088)$617,440 
Net (loss) income per share attributable to Vir, basic$(1.22)$1.32 $(3.73)$4.66 
Net (loss) income per share attributable to Vir, diluted$(1.22)$1.30 $(3.73)$4.58 
Weighted-average shares outstanding, basic134,289,620132,729,530133,969,878132,422,028
Weighted-average shares outstanding, diluted134,289,620134,963,317133,969,878134,711,777
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

VIR BIOTECHNOLOGY, INC.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(in thousands)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Net (loss) income$(163,413)$175,312 $(499,144)$617,440 
Other comprehensive income (loss):
Unrealized gain (loss) on investments994 (4,318)7,194 (10,754)
Amortization of actuarial gain (loss)9 (9)28 (27)
Other comprehensive income (loss)1,003 (4,327)7,222 (10,781)
Comprehensive (loss) income$(162,410)$170,985 $(491,922)$606,659 
Comprehensive loss attributable to noncontrolling interest  (56) 
Comprehensive (loss) income attributable to Vir$(162,410)$170,985 $(491,866)$606,659 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

VIR BIOTECHNOLOGY, INC.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except shares amounts)
(unaudited)
Vir Stockholders' Equity
Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings (Accumulated Deficit)
Noncontrolling
interest
Total
Stockholders'
Equity
ShareAmount
Balance at June 30, 2023134,230,494$13 $1,771,536 $(2,903)$41,562 $ $1,810,208 
Vesting of restricted common stock73,351— — — — — — 
Exercise of stock options194,041— 343 — — — 343 
Stock-based compensation— 26,944 — — — 26,944 
Other comprehensive income— — 1,003 — — 1,003 
Net loss— — — (163,413)— (163,413)
Balance at September 30, 2023134,497,886$13 $1,798,823 $(1,900)$(121,851)$ $1,675,085 
Vir Stockholders' Equity
Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Noncontrolling
interest
Total
Stockholders'
Equity
ShareAmount
Balance at June 30, 2022132,597,812$13 $1,656,024 $(7,553)$303,528 $ $1,952,012 
Vesting of restricted common stock53,102— — — — — — 
Exercise of stock options376,444— 2,044 — — — 2,044
Stock-based compensation— 24,814 — — — 24,814
Other comprehensive loss— — (4,327)— — (4,327)
Net income— — — 175,312 — 175,312 
Balance at September 30, 2022133,027,358$13 $1,682,882 $(11,880)$478,840 $ $2,149,855 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

VIR BIOTECHNOLOGY, INC.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except shares amounts)
(unaudited)
Vir Stockholders' Equity
Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings (Accumulated Deficit)
Noncontrolling
interest
Total
Stockholders'
Equity
ShareAmount
Balance at December 31, 2022133,236,687$13 $1,709,835 $(9,122)$377,237 $— $2,077,963 
Vesting of restricted common stock690,811— — — — — — 
Exercise of stock options455,485— 3,395 — — — 3,395 
Issuance of common stock under employee stock purchase plan114,903— 2,605 — — — 2,605 
Stock-based compensation— 83,044 — — — 83,044 
Other comprehensive income— — 7,222 — — 7,222 
Contributions from noncontrolling interest owners— — — — 100 100 
Increase in ownership interest in a subsidiary— (56)— — (44)(100)
Net loss— — — (499,088)(56)(499,144)
Balance at September 30, 2023134,497,886$13 $1,798,823 $(1,900)$(121,851)$ $1,675,085 
Vir Stockholders' Equity
Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
(Accumulated Deficit) Retained
Earnings
Noncontrolling
interest
Total
Stockholders'
Equity
ShareAmount
Balance at December 31, 2021131,161,404$13 $1,571,535 $(1,099)$(138,600)$— $1,431,849 
Issuance of common stock in connection with a grant agreement881,365— 28,462 — — — 28,462
Vesting of restricted common stock323,700— — — — — — 
Exercise of stock options566,714— 3,602 — — — 3,602
Issuance of common stock under employee stock purchase plan94,175— 2,066 — — — 2,066 
Stock-based compensation— 77,217 — — — 77,217
Other comprehensive loss— — (10,781)— — (10,781)
Net income— — — 617,440 — 617,440
Balance at September 30, 2022133,027,358$13 $1,682,882 $(11,880)$478,840 $— $2,149,855 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7

VIR BIOTECHNOLOGY, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended September 30,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income$(499,144)$617,440 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Change in estimated constraint on profit-sharing amount(28,101)353,526 
Depreciation and amortization14,573 4,431 
Amortization of intangible assets399 399 
Accretion of discounts on investments, net(10,057)(1,315)
Payment of contingent consideration in excess of acquisition date fair value (93,803)
Noncash lease expense6,218 6,473 
Change in fair value of equity investments20,895 120,019 
Change in estimated fair value of contingent consideration(637)7,890 
Stock-based compensation83,044 77,217 
In-process research and development impairment6,899  
Long-lived assets impairment7,474  
Other(578)301 
Changes in operating assets and liabilities:
Receivable from collaboration3,041 491,872 
Prepaid expenses and other current assets54,194 11,023 
Other assets(150)(3,434)
Accounts payable(1,895)(2,003)
Accrued liabilities and other long-term liabilities(316,918)65,144 
Operating lease liabilities(9,910)(2,547)
Deferred revenue(205)(24,506)
Net cash (used in) provided by operating activities(670,858)1,628,127 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of an equipment 22 
Purchases of property and equipment(20,038)(55,432)
Purchases of investments(1,197,199)(1,069,752)
Maturities of investments1,486,677 84,836 
Net cash provided by (used in) investing activities269,440 (1,040,326)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock in connection with a grant agreement 28,462 
Payment of principal on financing lease obligation(200)(183)
Proceeds from exercise of stock options3,395 3,602 
Issuance of common stock under ESPP2,605 2,066 
Contributions from noncontrolling interest owners100  
Increase in ownership interest in a subsidiary(100) 
Payment of contingent consideration (1,197)
Net cash provided by financing activities5,800 32,750 
Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents(395,618)620,551 
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period867,968 363,415 
Cash, cash equivalents and restricted cash and cash equivalents at end of period$472,350 $983,966 
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS TO THE CONDENSED CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents$452,100 $963,735 
Restricted cash and cash equivalents, current13,193 12,955 
Restricted cash and cash equivalents, noncurrent7,057 7,276 
Total cash, cash equivalents and restricted cash and cash equivalents$472,350 $983,966 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8

VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization
Business Overview
Vir Biotechnology, Inc. (“Vir” or the “Company”) is an immunology company focused on combining cutting-edge technologies to treat and prevent serious infectious diseases and other serious conditions. Vir has assembled two technology platforms that are designed to stimulate and enhance the immune system by exploiting critical observations of natural immune processes. Its current clinical development pipeline consists of product candidates targeting hepatitis B virus (“HBV”), hepatitis delta virus (“HDV”) and human immunodeficiency virus (“HIV”). Vir has several preclinical candidates in its pipeline including those targeting influenza A and B, coronavirus disease 2019 (“COVID-19”), respiratory syncytial virus and human metapneumovirus, (“RSV” and “MPV”, respectively), and human papillomavirus (“HPV”).
In January 2023, a majority-owned subsidiary, Encentrio Therapeutics, Inc. (“Encentrio”), was incorporated in the State of Delaware. The Company initially owned 80% of Encentrio’s outstanding voting shares. During the three months ended June 30, 2023, the Company increased its ownership of Encentrio's outstanding voting shares to 100%. The primary purpose of Encentrio is to conduct research and development of oncology therapeutics.
Liquidity and Capital Resources
In November 2020, the Company entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), under which the Company may from time to time offer and sell shares of its common stock for an aggregate offering price of up to $300.0 million, through or to Cowen, acting as sales agent or principal. The shares will be offered and sold under the Company’s shelf registration statement on Form S-3 and a related prospectus filed with the Securities and Exchange Commission (the “SEC”) on November 10, 2020. The Company 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 of September 30, 2023, no shares have been sold under the Sales Agreement. The Sales Agreement will expire in November 2023.
As of September 30, 2023, the Company had $1.7 billion in cash, cash equivalents, and investments, which the Company believes will be sufficient to fund its operations for a period through at least twelve months from the issuance date of these unaudited condensed consolidated financial statements.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. The unaudited condensed consolidated financial statements include the accounts of Vir and its majority-owned subsidiaries. For consolidated entities where Vir owns or is exposed to less than 100.0% of the economics, the Company records net income (loss) attributable to noncontrolling interests, net of tax in its unaudited condensed consolidated statements of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. All intercompany balances and transactions have been eliminated upon consolidation.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s financial information. The condensed consolidated results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or for any other future annual or interim period.
Certain information and footnote disclosures typically included in the Company’s annual consolidated financial statements have been condensed or omitted. As such, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023.
9

VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.
Concentration of Credit Risk, Credit Loss and Other Risks and Uncertainties
Although the Company received Emergency Use Authorization (“EUA”), temporary authorization or marketing approval for sotrovimab (under the brand name Xevudy®), sotrovimab is currently deauthorized in the U.S. and has limitations in use outside of the U.S. In addition, the Company is subject to a number of other challenges and risks similar to other biopharmaceutical companies in the early stage, including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, the need to obtain marketing approval for its other product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of sotrovimab and other product candidates and protection of proprietary technology. If the Company does not successfully obtain regulatory approval, commercialize or partner any of its product candidates, it will be unable to generate revenue from product sales or maintain profitability.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and investments. Cash and cash equivalents are deposited in checking and sweep accounts at financial institutions. Such deposits may, at times, exceed federally insured limits. On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver. Prior to such events, the Company held cash deposits at SVB in excess of government insured limits. On March 12, 2023, the U.S. Treasury Department, the Federal Reserve and the FDIC jointly announced enabling actions that fully protect all SVB depositors’ insured and uninsured deposits, and that such depositors would have access to all of their funds starting March 13, 2023. On March 13, 2023, the Company was able to access its deposits at the FDIC’s newly created Silicon Valley Bridge Bank, N.A., which was subsequently purchased on March 27, 2023 by First Citizens Bank & Trust Company, a subsidiary of First Citizens BancShares, Inc. As such, no losses have been incurred by the Company on deposits that were held at SVB. Management believes that the Company is not currently exposed to significant credit risk as the Company’s investments are held in custody at a third-party financial institution.
The Company’s investment policy limits investments to certain types of securities issued by the U.S. government, its agencies and institutions,with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and investments, and issuers of the investments to the extent recorded on the unaudited condensed consolidated balance sheets. As of September 30, 2023, the Company has no off-balance sheet concentrations of credit risk.
The Company is exposed to credit losses primarily through receivables from customers and collaborators and through its available-for-sale debt securities. The Company’s expected loss allowance methodology for the receivables is developed using historical collection experience, current and future economic market conditions, a review of the current aging status and financial condition of the entities. Specific allowance amounts are established to record the appropriate allowance for customers that have a higher probability of default. Balances are written off when determined to be uncollectible. The Company’s expected loss allowance methodology for the debt securities is developed by reviewing the extent of the unrealized loss, the size, term, geographical location, and industry of the issuer, the issuers’ credit ratings and any changes in those ratings, as well as reviewing current and future economic market conditions and the issuers’ current status and financial condition. During the nine months ended September 30, 2023 and 2022, there was no allowance for losses on available-for-sale debt securities attributable to credit risk.
Investments
Investments include available-for-sale debt securities and equity investments, which are carried at estimated fair value.
10

VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Available-for-Sale Debt Securities
The Company’s valuations of marketable securities are generally derived from independent pricing services based on quoted prices in active markets for similar securities at period end. Generally, investments with original maturities beyond three months at the date of purchase and which mature at, or less than 12 months from, the unaudited condensed consolidated balance sheet date are considered short-term investments, with all others considered to be long-term investments. Unrealized gains and losses deemed temporary in nature are reported as a component of accumulated other comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income on the unaudited condensed consolidated statements of operations. The cost of securities sold is based on the specific identification method.
Equity Investments
The Company measures its investment in equity securities at fair value at each reporting date based on the market price at period end if it has a readily determinable fair value. Otherwise, the investments in equity securities are measured at cost less impairment, adjusted for observable price changes for identical or similar investments of the same issuer unless the Company has significant influence or control over the investee. Changes in fair value resulting from observable price changes are presented as change in fair value of equity investments, and changes in fair value resulting from foreign currency translation are included in other income (expense), net on the unaudited condensed consolidated statements of operations.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents represent money market funds to secure standby letters of credit and security deposits with financial institutions, both under office and laboratory space lease agreements. Additionally, funds received from certain grants are restricted as to their use and are therefore classified as restricted cash and cash equivalents.
Revenue Recognition
Collaboration, License and Contract Revenue
Under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when the Company’s customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods and services. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as the Company satisfies a performance obligation.
For collaborative arrangements that fall within the scope of ASC 808, Collaborative Arrangements (“ASC 808”), the Company first determines which elements of the collaboration are deemed to be a performance obligation with a customer within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808 and are not subject to the guidance in ASC 606, the Company applies the revenue recognition model under ASC 606, including the royalty exception guidance and variable consideration guidance under ASC 606 as described below, or other guidance, as deemed appropriate. When the Company is considered an agent in elements of collaboration arrangements within the scope of ASC 808, it records its share of collaboration revenue in the period in which such sales occur. The Company is considered an agent when the collaboration partner controls the product before transfer to the customers and has the ability to direct the use of and obtain substantially all of the remaining benefits from the product. In these instances, collaboration revenue is based upon the net sales reported by the Company's collaboration partners, net of cost of goods sold and allowable expenses (e.g., manufacturing, distribution, medical affairs, selling, and marketing expenses) in the period. In order to record collaboration revenue, the Company utilizes certain information from its collaboration partner, including actual net product sales and costs incurred for sales activities, and makes 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. The Company uses these estimates to determine whether payments due to it under its collaboration arrangements, such as profit-share payments, should be recognized as revenue in the period that they become due or whether any portion of the payments due should be constrained from revenue recognition because it is not probable that recognizing such amounts would not result in a material reversal of revenues in future reporting periods.
11

VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The Company has entered into a number of license and collaboration agreements that fall within the scope of ASC 606. The Company evaluates the promised goods or services in these agreements to determine which ones represent distinct performance obligations.
Prior to recognizing revenue, the Company estimates the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. These estimates are re-assessed each reporting period as required. These agreements may include the following types of consideration: non-refundable upfront payments, reimbursement for research services, research, development or regulatory milestone payments, profit-sharing arrangements, and royalty and commercial sales milestone payments.
If there are multiple distinct performance obligations, the Company allocates the transaction price to each distinct performance obligation based on their estimated standalone selling prices (“SSP”). The Company estimates the SSP for each distinct performance obligation by considering information such as market conditions, entity-specific factors, and information about its customer that is reasonably available. The Company considers estimation approaches that allow it to maximize the use of observable inputs. These estimation approaches may include the adjusted market assessment approach, the expected cost plus a margin approach or the residual approach. The Company also considers whether to use a different estimation approach or a combination of approaches to estimate the SSP for each distinct performance obligation. Developing certain assumptions (e.g., treatable patient population, expected market share, probability of success and product profitability, discount rate based on weighted-average cost of capital) to estimate the SSP of a distinct performance obligation requires significant judgment.
For performance obligations satisfied over time, the Company estimates the efforts needed to complete the performance obligation and recognizes revenue by measuring the progress towards complete satisfaction of the performance obligation using an input measure.
For arrangements that include sales-based royalties, including commercial milestone payments based on pre-specified levels of sales, 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). Achievement of these royalties and commercial milestones may solely depend upon the performance of the licensee.
Grant Revenue
Grants received, including cost reimbursement agreements, are assessed to determine if the agreement should be accounted for as an exchange transaction or a contribution. An agreement is accounted for as a contribution if the resource provider does not receive commensurate value in return for the assets transferred. Contributions are recognized as grant revenue when all donor-imposed conditions have been met.
Contingent Consideration Obligations
Contingent consideration obligations incurred in connection with a business combination are recorded at their fair values on the acquisition date, are remeasured each subsequent reporting period until the related contingencies are resolved and are classified as contingent consideration on the unaudited condensed consolidated balance sheets. The changes in fair values of contingent consideration related to the achievement of various milestones are recorded within research and development expenses or selling, general and administrative expenses based on the nature of the relevant underlying activities.

12

VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
3. Fair Value Measurements
The Company determines the fair value of financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:
Level 1: Inputs which include quoted prices in active markets for identical assets and liabilities.
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying amounts of the Company’s financial instruments, including accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities.
Cash Equivalents and Available-for-Sale Securities
The following tables summarize the Company’s Level 1 and Level 2 financial assets measured at fair value on a recurring basis within the fair value hierarchy as of September 30, 2023 and December 31, 2022:
September 30, 2023
Valuation
Hierarchy
Amortized
Cost
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Aggregate
Fair Value
(in thousands)
Assets:
Money market funds(1)
Level 1$470,323 $— $— $470,323 
U.S. government treasuriesLevel 21,073,982 15 (1,009)1,072,988 
U.S. government agency bonds and discount notesLevel 2167,372 14 (220)167,166 
Equity securitiesLevel 1N/AN/AN/A 10,825 
Total financial assets$1,711,677 $29 $(1,229)$1,721,302 
______________________________________________
(1)Includes $20.3 million of restricted cash equivalents.
December 31, 2022
Valuation
Hierarchy
Amortized
Cost
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Aggregate
Fair Value
(in thousands)
Assets:
Money market funds(1)
Level 1$909,342 $— $— $909,342 
U.S. government treasuriesLevel 21,493,841  (8,396)1,485,445 
Equity securitiesLevel 1N/AN/AN/A 31,892 
Total financial assets$2,403,183 $ $(8,396)$2,426,679 
______________________________________________
(1)Includes $19.3 million of restricted cash equivalents.
Accrued interest receivable excluded from both the fair value and amortized cost basis of the available-for-sale debt securities are presented within prepaid expenses and other current assets in the unaudited condensed consolidated balance sheets. Accrued interest receivable amounted to $2.9 million and $2.5 million as of September 30, 2023 and December 31,
13

VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
2022, respectively. The Company did not write off any accrued interest receivable during the nine months ended September 30, 2023 and 2022.
The Company recognized total net unrealized losses of $1.2 million and $8.4 million in accumulated other comprehensive loss as of September 30, 2023 and December 31, 2022, respectively. The gross unrealized losses related to U.S. government treasuries as of September 30, 2023 and December 31, 2022 were due to changes in interest rates. As of September 30, 2023, there were no investments that have been in a continuous material unrealized loss position for longer than 12 months. The Company determined that the gross unrealized losses on our investments as of September 30, 2023 were temporary in nature. The Company currently does not intend, and it is highly unlikely that it will be required, to sell these securities before recovery of their amortized cost basis. As of September 30, 2023, no securities have contractual maturities of longer than 2 years.
As of September 30, 2023, the Company's equity investment consisted solely of ordinary shares of Brii Biosciences Limited (“Brii Bio Parent”). The equity securities of Brii Bio Parent are listed on the Stock Exchange of Hong Kong Limited and are considered to be marketable equity securities and subsequently remeasured at fair value at each reporting date. As of September 30, 2023, the Company remeasured the equity investment at a fair value of $10.8 million. The Company recognized an unrealized loss of $2.7 million and $13.6 million, for the three months ended September 30, 2023 and 2022, respectively, and an unrealized loss of $20.9 million and $120.0 million, for the nine months ended September 30, 2023 and 2022, respectively, as other income (expense) in the unaudited condensed consolidated statement of operations. For the three and nine months ended September 30, 2023 and 2022, the unrealized losses related to foreign currency translation for the respective periods were immaterial.
Contingent Consideration Obligations
Contingent consideration obligations include potential milestone payments in connection with the acquisition of Humabs Biomed SA (“Humabs”). The Company classifies the contingent consideration as Level 3 financial liabilities within the fair value hierarchy as of September 30, 2023 and December 31, 2022.
The estimated fair value of the contingent consideration related to the Humabs acquisition was determined by calculating the probability-weighted clinical, regulatory and commercial milestone payments based on the assessment of the likelihood and estimated timing that certain milestones would be achieved. As of September 30, 2023, the Company calculated the estimated fair value of the remaining clinical and regulatory milestones related to VIR-3434, an investigational subcutaneously administered HBV-neutralizing monoclonal antibody, or mAb, using the following significant unobservable inputs:
Unobservable input
Range
(Weighted-Average)1
Discount rates
12.7% - 13.3% (13.0%)
Probability of achievement
14.4% - 60.0% (43.0%)
______________________________________________
(1)Unobservable inputs were weighted based on the relative fair value of the clinical and regulatory milestone payments.
For the commercial milestones, the Company used a Monte Carlo simulation. As of September 30, 2023, the Monte Carlo simulation assumed a commercial product launch and associated discrete revenue forecasts, as well as the following significant unobservable inputs for the remaining commercial milestones related to VIR-3434:
Unobservable inputValue
Volatility70.0%
Discount rate11.0%
Probability of achievement29.1%
The discount rate captures the credit risk associated with the payment of the contingent consideration when earned and due. As of September 30, 2023 and December 31, 2022, the estimated fair value of the contingent consideration related to the Humabs acquisition was $24.3 million and $23.4 million, respectively, with changes in the estimated fair value recorded in research and development expenses in the unaudited condensed consolidated statements of operations.
14

VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The estimated fair value of the contingent consideration related to the Humabs acquisition involves significant estimates and assumptions that give rise to measurement uncertainty.
The following table sets forth the changes in the estimated fair value of the Company’s contingent consideration obligations (in thousands):
Contingent
Consideration
Balance at December 31, 2022$24,937 
Changes in fair value(627)
Balance at September 30, 2023$24,310 
4. Grant Agreements
Bill & Melinda Gates Foundation Grants
The Company has entered into various grant agreements with the Bill & Melinda Gates Foundation, under which it was awarded grants totaling up to $49.9 million to support its human cytomegalovirus ("HCMV") vaccine programs for HIV and tuberculosis as well as the Company's HIV vaccinal antibody program and malaria vaccinal antibody program. The term of the grant agreements will expire at various dates through June 2027, unless terminated earlier by the Bill & Melinda Gates Foundation for the Company’s breach, failure to progress the funded project, in the event of the Company’s change of control, change in the Company’s tax status, or significant changes in the Company’s leadership that the Bill & Melinda Gates Foundation reasonably believes may threaten the success of the projects.
Concurrently with the execution of the grant agreement for the vaccinal antibody program, the Company entered into a stock purchase agreement with the Bill & Melinda Gates Foundation, under which the Bill & Melinda Gates Foundation purchased 881,365 shares of the Company’s common stock on January 13, 2022, at a price per share of $45.38, for an aggregate purchase price of approximately $40.0 million. The fair market value of the common stock issued to the Bill & Melinda Gates Foundation was $28.5 million, based on the closing stock price of $37.65 per share on the closing date and taking into account a discount for the lack of marketability due to the restrictions in place on the underlying shares, resulting in a $11.3 million premium received by the Company. The Company accounted for the common stock issued to the Bill & Melinda Gates Foundation based on its fair market value on the closing date and determined that the premium paid by the Bill & Melinda Gates Foundation should be included in the deferred revenue from the vaccinal antibody grant.
Payments received in advance that are related to future research activities along with the aforementioned premium received are deferred and recognized as revenue when the donor-imposed conditions are met, which is as the research and development activities are performed. The premium received by the Company is deferred and recognized over the same period as the grant proportionally. The Company recognized grant revenue of $3.8 million and $2.8 million for the three months ended September 30, 2023 and 2022, respectively, and $10.5 million and $7.4 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023 and December 31, 2022, the Company had deferred revenue of $15.3 million and $15.5 million, respectively. As of September 30, 2023 and December 31, 2022, the Company had $9.2 million and $7.7 million, respectively, within accrued and other liabilities, which may need to be refunded to the Bill & Melinda Gates Foundation.
Biomedical Advanced Research and Development Authority
In September 2022, the Company entered into an other transaction for advanced research agreement (the “BARDA Agreement”) with the Biomedical Advanced Research and Development Authority (“BARDA”), part of the U.S. Department of Health and Human Services’ Administration for Strategic Preparedness and Response. Under the BARDA Agreement, the Company may receive up to an estimated $1.0 billion to advance the development of a full portfolio of innovative solutions to address influenza and potentially other infectious disease threats. The Base Period for the BARDA Agreement includes government funding of approximately $55.0 million to reimburse a portion of expenses incurred by the Company to support the development of VIR-2482, an investigational prophylactic monoclonal antibody designed with the aim to protect against seasonal and pandemic influenza, including expenses related to the Phase 2 pre-exposure prophylaxis trial of VIR-2482. The BARDA Agreement also provides for additional BARDA funding after the exercise by BARDA of up to twelve options to further support the development of pre-exposure prophylactic antibodies including and beyond
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VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
VIR-2482 for the prevention of influenza illness or possibly supporting medical countermeasures for other pathogens of pandemic potential.
In September 2023, the Company and BARDA entered into Amendment No. P00001 to the BARDA Agreement (the “Amended BARDA Agreement”), pursuant to which BARDA awarded the Company $50.1 million in new funding upon the exercise of an additional option. The Company will use $40.0 million to support the development of VIR-7229 through a Phase 1 clinical trial and $10.1 million to support the discovery of new monoclonal antibody against a second pathogen of pandemic potential. The Company may also receive up to $11.2 million of additional funding for the Base Period under the Amended BARDA Agreement to wind down activities related to the Phase 2 pre-exposure prophylaxis trial of VIR-2482. The Amended BARDA Agreement will expire in July 2027 and may be extended by mutual written agreement of the Company and BARDA, if funding is available and research opportunities within scope reasonably warrant, or, if any of the options are exercised (as described above), to cover the period of such exercised option set forth in the Amended BARDA Agreement. The Amended BARDA Agreement is terminable by the Company and BARDA at any time under specified circumstances, including for convenience.
The Company recognized grant revenue under the BARDA Agreement of $2.9 million and $29.0 million for the three and nine months ended September 30, 2023, respectively, and an other receivable in prepaid expenses and other current assets of $4.8 million as of September 30, 2023. As of September 30, 2023, $60.9 million of potential future reimbursement remains available out of $116.3 million total awarded amount under the Amended BARDA Agreement.
5. Collaboration and License Agreements
Collaboration Agreements with GSK
2020 GSK Agreement
In 2020, the Company, Glaxo Wellcome UK Limited and Beecham S.A. entered into a collaboration agreement (the “2020 GSK Agreement”). Subsequently, Beecham S.A. assigned and transferred all its rights, title, interest, and benefit in the 2020 GSK Agreement to GlaxoSmithKline Biologicals S.A. (Glaxo Wellcome UK Limited and GlaxoSmithKline Biologicals S.A., referred to, individually and together, as “GSK”). Under the terms of the 2020 GSK Agreement, the Company and GSK agreed to collaborate to research, develop and commercialize products for the prevention, treatment and prophylaxis of diseases caused by SARS-CoV-2, the virus that causes COVID-19, and potentially other coronaviruses. The collaboration initially focused on the development and commercialization of three programs: (1) antibodies targeting SARS-CoV-2 and potentially other coronaviruses (the “Antibody Program”); (2) vaccines targeting SARS-CoV-2 and potentially other coronaviruses (the “Vaccine Program”), and (3) products based on genome-wide CRISPR screening of host targets expressed in connection with exposure to SARS-CoV-2 and potentially other coronaviruses (the “Functional Genomics Program”).
On February 8, 2023, the Company and GSK entered into Amendment No. 2 and Amendment No. 3 to the 2020 GSK Agreement. Pursuant to Amendment No. 2, the Company and GSK agreed to remove the Vaccine Program from the 2020 GSK Agreement, and to wind down and terminate the cost-sharing arrangements and all ongoing activities in relation to the Vaccine Program. As of the effective date of Amendment No. 2, the Vaccine Program had not yet advanced to its predefined development candidate stage. The Company retains the right to progress development of vaccine products directed to SARS-CoV-2 and other coronaviruses independently (including with or for third parties) outside the scope of the 2020 GSK Agreement, subject to the payment of tiered royalties to GSK on net sales of any vaccine products covered by certain GSK intellectual property rights in the low single digits. Pursuant to Amendment No. 3, the Company and GSK agreed to modify the Antibody Program to remove from the collaboration all coronavirus antibodies other than sotrovimab and VIR-7832, and certain variants thereof. Sotrovimab and VIR-7832, and certain variants thereof, remain subject to the terms of the 2020 GSK Agreement, and the Company retains the sole right to progress the development and commercialization of the terminated antibody products independently (including with or for third parties), subject to the payment of tiered royalties to GSK on net sales of such terminated antibody products at percentages ranging from the very low single digits to the mid-single digits, depending on the nature of the antibody product being commercialized.
Subject to an opt-out mechanism, the parties share all development costs, manufacturing costs, and costs and expenses for the commercialization of the collaboration products, with the Company bearing 72.5% of such costs for the antibody products, except that GSK has the sole right to develop (including to seek, obtain or maintain regulatory approvals), manufacture and commercialize sotrovimab in and for mainland China, Hong Kong, Macau and Taiwan at GSK's sole cost and expense, and equal sharing of such costs for the functional genomics products.
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VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The 2020 GSK Agreement will remain in effect with respect to each collaboration program for as long as there is a collaboration product being developed or commercialized by the lead party, or the non-opt-out party, in such program. Either party has the right to terminate the 2020 GSK Agreement in the case of the insolvency of the other party, an uncured material breach of the other party with respect to a collaboration program or collaboration product, or as mutually agreed by the parties.
In May 2021, the U.S. Food and Drug Administration (“FDA”) granted an EUA in the United States for sotrovimab, the first collaboration product under the Antibody Program. 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. As described in Note 2—Summary of Significant Accounting Policies, the Company’s 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. As the Company is the agent, the Company recognizes its contractual share of the profit-sharing amounts or royalties (in case of an opt-out) as revenue, 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. 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. In periods when allowable expenses exceed amounts recognized for net product sales of sotrovimab, negative revenue would be reported in our consolidated statements of operations. The Company’s contractual share of the profit-sharing amounts is subject to potential future adjustments to allowable expenses, which represents a form of variable consideration. At each reporting period, the Company evaluates the latest available facts and circumstances to determine whether any portion of profit-sharing amounts should be constrained.
In 2023, GSK reported to the Company certain allowable manufacturing expenses related to excess sotrovimab supply and binding reserved manufacturing capacity not utilized, which the Company had previously reserved as constraint on its cumulative profit-sharing amounts. For the three and nine months ended September 30, 2023, the Company paid GSK $67.0 million and $340.5 million, respectively, relating to these manufacturing expenses. GSK may continue to adjust allowable manufacturing expenses for the Company’s share of the excess supply write-offs and unused binding manufacturing capacity and report to the Company as cost-sharing amounts in future periods. The Company evaluated the latest available facts and circumstances to update its evaluation of profit-sharing amounts to be constrained. As of September 30, 2023, the Company reserved $0.9 million as accrued liability for its share of the remaining estimated manufacturing expenses related to excess sotrovimab supply and binding reserved manufacturing capacity not utilized. The Company re-assesses these estimates each reporting period.
During the three and nine months ended September 30, 2023 and 2022, the Company recorded profit-sharing amounts, profit-sharing amounts constrained, and profit-sharing amounts constrained, released as components of collaboration revenue in the unaudited condensed consolidated statements of operations, as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(in thousands)
Collaboration revenue, net
Profit-sharing amount$(6,038)$291,226 $(7,198)$1,863,374 
Profit-sharing amount constrained (2,431) (399,864)
Profit-sharing amount previously constrained, released1,651 20,350 35,606 20,350 
Total collaboration revenue, net$(4,387)$309,145 $28,408 $1,483,860 
Costs associated with co-development activities performed under the 2020 GSK Agreement are included in research and development expenses on the unaudited condensed consolidated statements of operations, with any reimbursement of costs by GSK reflected as a reduction of such expenses. Under the 2020 GSK Agreement, the Company recognized additional net research and development expenses of $6.1 million and $10.4 million during the three months ended September 30,
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VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
2023 and 2022, respectively, and $18.6 million and $24.0 million during the nine months ended September 30, 2023 and 2022, respectively.
2021 Expanded GSK Collaboration
In 2021, the Company and GSK entered into a collaboration agreement (the “2021 GSK Agreement”) under which the parties agreed to expand the 2020 GSK Agreement to collaborate on three separate programs: (1) a program to research, develop and commercialize monoclonal antibodies (“mAbs”) for the prevention, treatment or prophylaxis of the influenza virus (the “Influenza Program”), excluding VIR-2482 unless GSK exercises its option as described below; (2) an expansion of the parties’ current Functional Genomics Program to focus on functional genomics screens directed to targets associated with respiratory viruses (the “Expanded Functional Genomics Program”); and (3) additional programs to develop neutralizing mAbs directed to up to three non-influenza target pathogens selected by GSK (the “Selected Pathogens” and such programs, the “Additional Programs”).
Under the Influenza Program, the parties collaborate to research, develop and commercialize mAbs for the prevention, treatment or prophylaxis of influenza, including the Company’s influenza mAbs (with respect to VIR-2482, only if GSK exercises its option). The Company conducts the development and clinical manufacturing activities for VIR-2482 up to the completion of a Phase 2 clinical trial. Provided that the Company conducts and completes a Phase 2 clinical trial for VIR-2482, GSK has the exclusive option to obtain exclusive rights to co-develop and commercialize VIR-2482 under the Influenza Program (the “VIR-2482 Option”). As of September 30, 2023, GSK had not exercised the VIR-2482 Option. On July 20, 2023, the Company announced that the VIR-2482 Phase 2 Prevention of Illness Due to Influenza A, or PENINSULA, trial evaluating the prevention of symptomatic influenza A illness did not meet primary or secondary efficacy endpoints. GSK is the lead party for development, clinical and commercial manufacturing and commercialization activities for products under the Influenza Program (other than VIR-2482 unless and until GSK exercises the VIR-2482 Option, if applicable).
The parties mutually agree upon the allocation of responsibility for the development of products under the Expanded Functional Genomics Program, and for the development and early-stage manufacturing of products under the Additional Programs if and when GSK decides which Selected Pathogens to pursue. GSK is primarily responsible for commercial manufacturing and commercialization activities for products under the Expanded Functional Genomics Program and Additional Programs, if and when selected by GSK. For each collaboration program, the Company granted or will grant GSK certain license rights related to the development, manufacturing and commercialization of products arising from the program. GSK selected respiratory syncytial virus (“RSV”) as its first pathogen under the Additional Programs.
The parties share 50% of all development costs in accordance with the budget for each of the collaboration programs (other than for VIR-2482, unless GSK exercises the VIR-2482 Option). The parties also share 50% of all profits and losses arising from any collaboration product.
If GSK exercises the VIR-2482 Option, GSK will pay the Company an option exercise fee of $300.0 million unless certain agreed product criteria for VIR-2482 are not met, in which case the parties will negotiate an alternative option exercise fee. Upon achievement of a pre-defined regulatory milestone for the first product in the Influenza Program, which may be (i) VIR-2482 (if GSK exercised the VIR-2482 Option), (ii) a next-generation mAb, or (iii) any other influenza mAb approved by the Joint Steering Committee to be included in the collaboration, arising from the Influenza Program, GSK will make a milestone payment to the Company of up to $200.0 million.
As of September 30, 2023, the total unrecognized transaction price of $51.7 million is classified as noncurrent deferred revenue on the Company's unaudited condensed consolidated balance sheets related to the remaining performance obligations, being the remaining two material rights resulting from the Selected Pathogen Rights.
Costs associated with co-development activities performed under the 2021 GSK Agreement are included in research and development expenses in the unaudited condensed consolidated statements of operations, with any reimbursement of costs by GSK reflected as a reduction of such expenses. Under the 2021 GSK Agreement, the Company recognized additional net research and development expenses of $0.6 million and $0.3 million during the three months ended September 30, 2023 and 2022, respectively, and $1.9 million and $1.3 million during the nine months ended September 30, 2023 and 2022, respectively.
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VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
6. Balance Sheet Components
Property and Equipment, net
Property and equipment, net consists of the following:
September 30,
2023
December 31,
2022
(in thousands)
Laboratory equipment$43,158 $36,533 
Computer equipment2,684 2,545 
Furniture and fixtures2,887 2,852 
Leasehold improvements80,207 84,422 
Construction in progress22  
Property and equipment, gross128,958 126,352 
Less accumulated depreciation(29,649)(20,743)
Total property and equipment, net$99,309 $105,609 
Depreciation expenses were $4.5 million and $14.6 million for the three and nine months ended September 30, 2023, respectively, and $1.6 million and $4.4 million for the three and nine months ended September 30, 2022, respectively.
Accrued and Other Liabilities
Accrued and other liabilities consist of the following:
September 30,
2023
December 31,
2022
(in thousands)
Research and development expenses$65,693 $48,880 
Payroll and related expenses27,176 28,286 
Accrued income taxes15,415 15,228 
Operating lease liabilities, current13,557 4,137 
Excess funds payable under grant agreements9,217 7,652 
Net profit-sharing amount6,964 357,762 
Other professional and consulting expenses4,336 3,987 
Other accrued expenses3,711 12,711 
Accrued royalties42 10,447 
Total accrued and other liabilities$146,111 $489,090 
7. Commitments and Contingencies
Legal Proceedings
The Company may from time to time be party to claims and legal proceedings that arise in the normal course of its business and that may or may not have, individually or in the aggregate, a material adverse effect on its results of operations, financial condition or liquidity.
Indemnification
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Under such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. In some cases, the indemnification will continue after the termination of the
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VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. In addition, the Company has entered into indemnification agreements with its directors and certain officers that may require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. To date, no demands have been made upon the Company to provide indemnification under these agreements, and thus, there are no indemnification claims that the Company is aware of that could have a material effect on the unaudited condensed consolidated balance sheets, unaudited condensed consolidated statements of operations, or unaudited condensed consolidated statements of cash flows.
8. Related Party Transaction
The Company holds a minority equity interest in Brii Biosciences Offshore Limited through Brii Bio Parent. As of September 30, 2023, one member of the Company’s board of directors serves on Brii Bio Parent’s board of directors.
9. Stock-Based Awards
The Company has maintained a stock incentive plan for the issuance of incentive stock options (“ISO”), non-qualified stock options (“NSO”), stock appreciation rights (“SARs”), restricted stock, other stock awards and performance cash awards, to employees, non-employee directors, and consultants. The Company also has an employee stock purchase plan (“ESPP”) for its employees or employees of any of the Company’s designated affiliates.
Stock Options Granted to Employees
The fair value of stock options granted to employees was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Expected term of options (in years)
6.1
6.1
5.5 - 6.1
5.3 - 6.1
Expected stock price volatility
99.9% - 100.9%
110.6% - 110.8%
99.6% - 101.5%
103.8% - 111.2%
Risk-free interest rate
4.0% - 4.4%
3.0% - 3.6%
3.4% - 4.4%
1.6% - 3.6%
Expected dividend yield
The valuation assumptions for stock options were determined as follows:
Expected Term — The expected term represents the period that the stock options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term).
Expected Volatility — Expected volatility is determined by using a blended approach of the Company and its industry peers’ historical volatilities.
Risk-Free Interest Rate — The Company based the risk-free interest rate over the expected term of the stock options based on the constant maturity rate of U.S. Treasury securities with similar maturities as of the date of the grant.
Expected Dividend Rate — The expected dividend is zero as the Company has not paid nor does it anticipate paying any dividends on its profit interest units in the foreseeable future.
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VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Stock-Based Compensation Expense
Stock-based compensation is recognized on a straight-line basis over the requisite service period, which is generally the vesting period. The following table sets forth the total stock-based compensation expense for all awards granted to employees and non-employees and the ESPP in the unaudited condensed consolidated statements of operations:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(in thousands)
Research and development$15,819 $12,607 $46,284 $39,791 
Selling, general and administrative11,125 12,207 36,760 37,426 
Total stock-based compensation$26,944 $24,814 $83,044 $77,217 
10. Net (Loss) Income Per Share
Basic net (loss) income per common share is computed by dividing the net (loss) income attributable to Vir by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted net (loss) income per common share is computed by dividing the net (loss) income attributable to Vir by the sum of the weighted-average number of common shares outstanding during the period plus any potential dilutive effects of common stock equivalents outstanding during the period calculated in accordance with the treasury stock method. For periods that the Company was in a net loss position, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common securities outstanding would have been anti-dilutive. The following is a calculation of the basic and diluted net (loss) income per share (in thousands, except share and per share data):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Net (loss) income attributable to Vir$(163,413)$175,312 $(499,088)$617,440 
Weighted-average shares outstanding, basic134,289,620132,729,530133,969,878132,422,028
Weighted-average effect of dilutive securities:
Options to purchase common stock2,144,3022,227,493
Restricted shares subject to future vesting75,75955,080
Shares to purchase under Employee Stock Purchase Plan13,7267,176
Weighted-average shares outstanding, diluted134,289,620134,963,317133,969,878134,711,777
Net (loss) income attributable to Vir per share, basic$(1.22)$1.32 $(3.73)$4.66 
Net (loss) income attributable to Vir per share, diluted$(1.22)$1.30 $(3.73)$4.58 
Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Options issued and outstanding10,601,0548,381,27510,990,2018,717,954
Restricted shares subject to future vesting5,130,3002,194,0504,112,3152,720,818
Total15,731,35410,575,32515,102,51611,438,772
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VIR BIOTECHNOLOGY, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
11. Income Taxes
The table below presents our (loss) income before benefit from (provision for) income taxes, benefit from (provision for) income taxes and effective tax rate for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(Loss) income before benefit from (provision for) income taxes$(166,626)$217,732 $(507,437)$905,918 
Benefit from (provision for) income taxes$3,213 $(42,420)$8,293 $(288,478)
Effective tax rate1.9 %19.5 %1.6 %31.8 %
The Company is subject to income taxes in the United States and foreign jurisdictions. These foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, the Company's effective tax rates will vary depending on the relative proportion of foreign to United States income/loss, the utilization of net operating loss and tax credit carry forwards and carrybacks, changes in jurisdictional mix of income and expense, changes in management’s assessment of matters such as the ability to realize deferred tax assets, and changes in tax laws.
The benefit from income taxes for the three and nine months ended September 30, 2023 was primarily due to a pre-tax loss and the Company's ability to carry-back the research and development credit to 2022.
Unrecognized tax benefits were $12.9 million and $10.6 million as of September 30, 2023 and December 31, 2022, respectively, and if recognized, would favorably affect the effective tax rate in future periods.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 ended December 31, 2022. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company”, “Vir,” “we,” “us” and “our” refer to Vir Biotechnology, Inc. and its consolidated subsidiaries.
Overview
We are an immunology company focused on combining cutting-edge technologies to treat and prevent serious infectious diseases and other serious conditions. Infectious diseases are among the leading causes of death worldwide and can cause 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 advances in immunology to combat current and prepare for future infectious disease threats. 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 clinical development pipeline consists of product candidates targeting hepatitis B virus, or HBV, hepatitis delta virus, or HDV and human immunodeficiency virus, or HIV. We also have several preclinical candidates in our pipeline, including those targeting influenza A and B, COVID-19, respiratory syncytial virus and human metapneumovirus, or RSV and MPV, respectively, and human papillomavirus, or HPV. We have assembled two technology platforms that are designed to stimulate and enhance the immune system by exploiting observations of natural immune processes and 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 and other serious conditions, we are committed to developing cost-effective treatments that can be delivered at scale.
We manufacture product candidates from our technology platforms. 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. We continue to expand our internal capabilities and resources in process development, analytical development, quality, manufacturing and supply chain, which are supported by our San Francisco, California, and Portland, Oregon facilities that include laboratories for process development, production of human cytomegalovirus, or 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 production.
Significant Developments
Following is a summary of selected significant developments affecting our business that occurred since the filing of our Quarterly Report on Form 10-Q for the period ended June 30, 2023.
Chronic Hepatitis B (CHB) & Chronic Hepatitis Delta (CHD)
VIR-2218 is an investigational HBV-targeting siRNA. VIR-3434 is an investigational HBV-neutralizing monoclonal antibody, or mAb, that incorporates Xencor, Inc.’s, or Xencor, XtendTM and other Fc technologies.
Phase 2 MARCH Part B 24-week End of Treatment data for VIR-3434 and VIR-2218 with and without peginterferon alpha in chronic hepatitis B and initial data from the Phase 2 SOLSTICE trial evaluating VIR-3434 and VIR-2218 as monotherapy and in combination for the once or twice monthly chronic treatment of people living with CHD to be presented at the American Association for the Study of Liver Diseases (“AASLD”) on November 13, 2023.
The Phase 2 PREVAIL platform trial and its THRIVE/STRIVE sub-protocols are ongoing. The platform is evaluating combinations of VIR-3434, VIR-2218 and/or peginterferon alpha in two CHB patient populations with the potential to evaluate other populations in the future. Initial data from this platform trial are expected in the first half of 2024.
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Human Immunodeficiency Virus (HIV)
VIR-1388 is an investigational HIV T cell vaccine based on HCMV.
In September 2023, we announced the initiation of the Phase 1 trial of VIR-1388, an investigational novel T cell vaccine for the prevention of HIV.
The trial is supported by the National Institute of Allergy and Infectious Diseases, part of the National Institutes of Health, and the Bill & Melinda Gates Foundation, and is being conducted by the HIV Vaccine Trials Network.
Initial data from the trial is expected in the second half of 2024.
COVID-19
VIR-7229 is an investigational severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, neutralizing mAb that incorporates Xencor’s Xtend technology. Sotrovimab is an investigational severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, neutralizing mAb that incorporates Xencor’s Xtend™ technology.
In October 2023, we announced we were awarded approximately $50 million in new funding from the Biomedical Advanced Research and Development Authority (“BARDA”), part of the Administration for Strategic Preparedness and Response within the U.S. Department of Health and Human Services (“HHS”).
$40 million of the total funds is part of Project NextGen, the Biden administration's program to accelerate the development of next-generation COVD-19 vaccines and treatments, and will support the development of VIR-7229 through Phase 1. It also supports developing alternative mAb delivery technologies, including RNA-delivered mAbs. We expect to initiate a Phase 1 clinical trial in 2024 and are exploring partner opportunities for post phase 1 development. The Phase 1 trial is expected to be completed in the second half of 2025.
$10 million of the total funds will support the discovery of new mAbs against a second pathogen of pandemic potential in the context of further advancing alternative mAb delivery technologies. This effort is receiving support from BARDA's Division of Chemical, Biological, Radiological and Nuclear Medical Countermeasures.
On August 30 2023, Nature published in vivo research findings that showed the role effector function plays in sotrovimab’s ability to activate the immune system and clear SARS-CoV-2.
Sotrovimab currently has emergency authorization, temporary authorization or marketing approval (under the brand name Xevudy®) for early treatment of COVID-19. It has been supplied to more than 40 countries and remains in use outside of the U.S.
Influenza
VIR-2482 is an investigational mAb designed for the prevention of influenza A that incorporates Xencor’s Xtend™ technology.
The full analysis of data from the Phase 2 PENINSULA trial is expected in Q1 2024. Initial post-hoc analyses have yielded the following conclusions:
VIR-2482’s ability to reduce cases of symptomatic flu improves to 57% for the 1,200 mg dose when the case definition (how symptomatic is defined) includes fever.
This relative risk reduction increases further to 65% when excluding the confirmed flu cases that occurred within a few days of dosing.
Preclinical Pipeline Candidates
We are continuing to advance next-generation mAbs based on our proprietary platform and enabled by artificial intelligence (“AI”) and machine-learning to deliver high-quality drug
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candidates more efficiently. We expect the filing of multiple new investigational new drugs (“INDs) in the next 12-24 months, including:
VIR-2981, an investigational neuraminidase-targeting mAb against both influenza A and B viruses.
VIR-8190, an investigational mAb against respiratory syncytial virus (RSV) and human metapneumovirus.
VIR-1949, an investigational therapeutic T cell vaccine based on our HCMV vector platform that is designed to treat precancerous lesions caused by human papillomavirus.
Corporate Update
In October 2023, we announced the appointment of Jennifer Towne, Ph.D., as Executive Vice President and Chief Scientific Officer, effective November 6, 2023. Dr. Towne joins us from The Janssen Pharmaceutical Companies of Johnson & Johnson, where she spent nine years holding immunology research leadership roles of increasing responsibility within Research and Development. Prior to Janssen, Dr. Towne held a variety of scientific roles during her 13 years at Amgen. During the course of her career, Dr. Towne led the development of 16 drug candidates from preclinical research to IND and early clinical development.
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 4—Grant Agreements and Note 5—Collaboration and License Agreements to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, and Note 7—Collaboration and License Agreements to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission, or SEC, on February 28, 2023.
Components of Operating Results
Revenues
To date, sotrovimab has been granted emergency authorization, temporary authorization or marketing approval (under the brand name Xevudy®), and has been supplied in more than 40 countries. Although we have previously recognized revenue from our profit-share related to sotrovimab under our definitive collaboration agreement with GSK executed in June 2020, or the 2020 GSK Agreement, 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. While we have an EUA from the U.S. Food and Drug Administration, or FDA, for sotrovimab, the FDA has excluded the use of sotrovimab in all U.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 any U.S. region. Although certain countries outside the U.S. continue to maintain access to 500 mg IV while noting that the clinical efficacy is unknown or uncertain against existing and emerging Omicron variants, we cannot predict whether other countries will further limit the use of sotrovimab. Due to the evolving COVID-19 landscape and based on discussions with the FDA, we and GSK do not plan to file a Biologics License Application, or 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 any U.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
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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
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 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. 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.
In 2023, GSK reported to us certain allowable manufacturing expenses related to excess sotrovimab supply and binding reserved manufacturing capacity not utilized, which we had previously reserved as constraint on our cumulative profit-sharing amounts. GSK may continue to adjust allowable manufacturing expenses for our share of the excess supply write-offs and unused binding manufacturing capacity and report to us as cost-sharing amounts in future periods. We evaluate the latest available facts and circumstances to update our evaluation of whether any portion of profit-sharing amounts should continue to be constrained. We re-assess these estimates at each reporting period. Actual results could materially differ from this estimate.
Contract revenue includes recognition of revenue generated from research and development services under third-party contracts, and from a third-party clinical supply agreement.
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 all 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;
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 emergency authorization, temporary authorization or marketing approval (under the brand name Xevudy®), and has been supplied in more than 40 countries. While we have an EUA from the FDA for sotrovimab, the FDA has excluded the use of sotrovimab in all U.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 any U.S. region, and we cannot predict whether (if at all) or to what extent sotrovimab may be reauthorized for use by the FDA in any U.S. region in the future. In addition, due to the evolving COVID-19 landscape and based on discussions with the FDA, we and GSK do not plan to file a BLA for sotrovimab at this time. Although certain countries outside the U.S. continue to maintain access to 500 mg IV while noting that the clinical efficacy is unknown or uncertain against existing and emerging Omicron variants, we cannot predict whether other countries will further limit the use of sotrovimab. 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, our existing collaborators have significant discretion in determining the efforts and resources that they will apply to our collaborations and may not pursue further development and commercialization of products resulting from our collaboration arrangements or may elect to not to continue or renew research and development programs, which would delay the development and may increase the cost of developing our product candidates and may result in a need for additional capital or a suitable replacement collaborator. For those product candidates where there is not a current collaboration arrangement in place, 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.
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;
the length of time required to enroll eligible patients;
the number of patients that participate in the trials;
the number of doses that patients receive;
the drop-out or discontinuation rates of patients;
potential additional safety monitoring requested by regulatory agencies;
the duration of patient participation in the trials and follow-up;
the cost and timing of manufacturing our product candidates;
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 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 the SEC 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, or Brii 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 our contingent consideration obligation.
Benefit from (Provision for) Income Taxes
Benefit from (provision for) income taxes consists primarily of income taxes on our domestic and foreign operations.
Net Loss Attributable to Noncontrolling Interest
Net loss attributable to noncontrolling interest consists of net loss attributable to the noncontrolling interest owners of Encentrio Therapeutics, Inc., our subsidiary, during the three months ended March 31, 2023.
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Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2023 and 2022
The following table summarizes our results of operations for the periods presented:
Three Months Ended
September 30,
Nine Months Ended
September 30,
20232022Change20232022Change
(in thousands)
Revenues:
Collaboration revenue$(4,387)$309,145 $(313,532)$28,408 $1,483,860 $(1,455,452)
Contract revenue289 39,998 (39,709)1,484 52,534 (51,050)
License revenue from a related party— 22,289 (22,289)— 22,289 (22,289)
Grant revenue6,737 3,125 3,612 39,501 7,704 31,797 
Total revenues2,639 374,557 (371,918)69,393 1,566,387 (1,496,994)
Operating expenses:
Cost of revenue38 22,253 (22,215)1,967 140,323 (138,356)
Research and development148,253 114,166 34,087 477,756 319,475 158,281 
Selling, general and administrative41,080 43,174 (2,094)134,959 123,019 11,940 
Total operating expenses189,371 179,593 9,778 614,682 582,817 31,865 
(Loss) income from operations(186,732)194,964 (381,696)(545,289)983,570 (1,528,859)
Other income (expense):
Change in fair value of equity investments(2,707)(13,590)10,883 (20,896)(120,019)99,123 
Interest income21,931 9,332 12,599 66,254 11,920 54,334 
Other income (expense), net882 27,026 (26,144)(7,506)30,447 (37,953)
Total other income (expense)20,106 22,768 (2,662)37,852 (77,652)115,504 
(Loss) income before benefit from (provision for) income taxes(166,626)217,732 (384,358)(507,437)905,918 (1,413,355)
Benefit from (provision for) income taxes3,213 (42,420)45,633 8,293 (288,478)296,771 
Net (loss) income$(163,413)$175,312 $(338,725)$(499,144)$617,440 $(1,116,584)
Net loss attributable to noncontrolling interest$— $— $— $(56)$— $(56)
Net (loss) income attributable to Vir$(163,413)$175,312 $(338,725)$(499,088)$617,440 $(1,116,528)
Revenues
The decrease in collaboration revenue for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily due to lower profit-sharing amounts from sales of sotrovimab as part of the 2020 GSK Agreement. Collaboration revenue for the three months ended September 30, 2023 consisted of $6.0 million negative revenue due to profit-sharing loss from the sale of sotrovimab under the 2020 GSK Agreement partially offset by $1.7 million release of profit-sharing amount previously constrained. Collaboration revenue for the nine months ended September 30, 2023 consisted of $7.2 million negative revenue due to profit-sharing loss from the sale of sotrovimab under the 2020 GSK Agreement partially offset by $35.6 million release of profit-sharing amount previously constrained. The release of profit-sharing constraint was primarily driven by favorable changes in excess manufacturing commitments of sotrovimab.
The decrease in contract revenue for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily due to $39.8 million of revenue recognized for the GSK's selection of RSV as a first pathogen under the 2021 GSK Agreement during the third quarter of 2022.
The decrease in license revenue from a related party for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was due to certain revenues recognized under the collaboration with Brii Bio Parent in the third quarter of 2022.
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The increase in grant revenue for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily due to $2.9 million and $29.0 million for the three and nine months ended September 30, 2023, respectively, in accordance with our agreement with BARDA.
Cost of Revenue
The decrease in cost of revenue for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily due to lower third-party royalties owed based on the sales of sotrovimab under the 2020 GSK Agreement.
Research and Development Expenses
The following table shows the primary components of our research and development expenses for the periods presented:
Three Months Ended
September 30,
Nine Months Ended
September 30,
20232022Change20232022Change
(in thousands)
Licenses, collaborations and contingent consideration$8,223 $14,939 $(6,716)$23,520 $50,002 $(26,482)
Personnel47,956 38,580 9,376 141,989 116,426 25,563 
Contract manufacturing40,352 14,180 26,172 106,147 30,738 75,409 
Clinical costs22,021 20,269 1,752 105,740 52,172 53,568 
Other29,701 26,198 3,503 100,360 70,137 30,223 
Total research and development expenses$148,253 $114,166 $34,087 $477,756 $319,475 $158,281 
The increase in research and development expenses for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily due to the following factors:
the increase in personnel-related expenses was primarily attributable to supporting the advancement of our clinical programs;
the increase in contract manufacturing expenses was primarily related to the cancellation of preparation costs of Phase 3 studies involving VIR-2482 and, to a lesser extent, VIR-2218, VIR-3434, and VIR-7229. VIR-2482 manufacturing cancellation costs for phase 3 activities were $21.9 million in the third quarter of 2023;
the increase in clinical costs was primarily attributable to the Company's Phase 2 PENINSULA trial evaluating VIR-2482 for the prevention of symptomatic influenza A illness and, to a lesser extent, the advancement of the Company's Phase 2 clinical trials evaluating the potential for VIR-2218 and VIR-3434 for treatment of chronic hepatitis B and chronic hepatitis delta, partially offset by lower costs associated with clinical trials for sotrovimab; and
the increase in other research and development expenses was primarily attributable to the allocation of facilities, including depreciation, and other costs due to an increase in our personnel and an impairment charge in the third quarter of 2023 associated with certain equipment used in the small molecule platform that was discontinued. The increase in other research and development expenses for the nine months ended September 30, 2023 was also partially attributable to an impairment charge associated with certain non-prioritized in-process research and development assets in the second quarter of 2023.
partially offset by
the decrease in licenses, collaborations and contingent consideration expenses primarily attributable to the lower expenses associated with the change in fair value of the contingent consideration obligation from our acquisition of Humabs Biomed SA, and lower costs under our collaboration arrangements with GSK and other R&D collaborators. The decrease in licenses, collaborations and contingent consideration expenses for the nine months ended September 30, 2023 was also attributable to $7.0 million expenses recognized in the second quarter of 2022 in
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connection with the termination of our development and manufacturing collaboration agreement with WuXi Biologics (Hong Kong) Limited.
Selling, General and Administrative Expenses
The selling, general and administrative expenses for the three months ended September 30, 2023 remained flat compared to the same period in 2022.
The increase in selling, general and administrative expenses for the nine months ended September 30, 2023 compared to the same periods in 2022 was primarily due to higher personnel-related costs to support the growth of the Company.
Change in Fair Value of Equity Investments
Our investment consisted solely of shares of Brii Bio Parent is a marketable equity investment and remeasured to fair value at each reporting period. For the three and nine months ended September 30, 2023, we recognized an unrealized loss of $2.7 million and $20.9 million, respectively, due to the change in fair value, compared to an unrealized loss of $13.6 million and $120.0 million, respectively, for the same periods in 2022.
Interest Income
The increase in interest income for the three and nine months ended September 30, 2023 was primarily due to higher interest rates as well as higher balances of short-term and long-term investments compared to the same periods in 2022.
Other Income (Expense), Net
The decrease in other income (expense), net for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily due to decrease in foreign exchange measurement gain related to the accrued liability recognized in connection with the profit-sharing amount constrained under the 2020 GSK Agreement.
Benefit from (Provision for) Income Taxes
The benefit from income taxes for the three and nine months ended September 30, 2023 was primarily due to a pre-tax loss and our ability to carry-back the research and development credit to 2022. The provision for income taxes for the three and nine months ended September 30, 2022 was primarily due to taxable income for 2022 attributable to significant collaboration revenue from the sales of sotrovimab.
Liquidity, Capital Resources and Capital Requirements
Sources of Liquidity
To date, we have financed our operations primarily through sales of our equity securities and payments received under our grant and collaboration agreements. As of September 30, 2023, we had $1.7 billion in cash, cash equivalents, and investments. As of September 30, 2023, we had accumulated deficit of $121.9 million. We entered into a sales agreement, or the Sales Agreement, with Cowen and Company, LLC, or TD 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 TD Cowen, acting as sales agent or principal. We will pay TD Cowen a commission of up to 3% of the aggregate gross proceeds from each sale of shares, reimburse legal fees and disbursements and provide TD Cowen with customary indemnification and contribution rights. As of September 30, 2023, no shares have been sold under the Sales Agreement, which will expire in November 2023. We are in the process of signing a new sales agreement with TD Cowen which is expected to be completed during the fourth quarter of 2023 before the Sales Agreement expires.
Funding Requirements and Commitments
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.
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We have not obtained regulatory approval for any product candidates other than sotrovimab, 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 may continue to incur net losses for the foreseeable future. Based upon our current operating plan, we believe that our existing cash, cash equivalents and investments as of September 30, 2023 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 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. See the sections titled “Risk Factors—Risks Related to Our Financial Position and Capital Needs—Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our product candidates.” and “Risk Factors—Risks Related to Our Financial Position and Capital Needs—We may require substantial additional funding to finance our operations. If we are unable to raise capital when needed, we could be forced to delay, reduce or terminate certain of our development programs or other operations” for a description of the risks that may be associated with any future capital raises.
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 in California, Oregon, Missouri and Switzerland with contractual lease periods expiring between 2024 and 2033. As of September 30, 2023, we expect to make total lease payments of $161.1 million through 2033.
To date, we have entered into collaboration, license and acquisition agreements where the payment obligations are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones, and we are required to make royalty payments in connection with the sale of products developed under those agreements. For additional information regarding these agreements, including our payment obligations thereunder, see Note 5—Collaboration and License Agreements to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, and Note 7—Collaboration and License Agreements to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023. For information related to our future commitments under our facilities and manufacturing agreements. see Note 9—Commitments and Contingencies to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023.
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We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended September 30,
20232022
(in thousands)
Net cash (used in) provided by:
Operating activities$(670,858)$1,628,127 
Investing activities269,440 (1,040,326)
Financing activities5,800 32,750 
Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents$(395,618)$620,551 
Operating Activities
During the nine months ended September 30, 2023, net cash used in operating activities was $670.9 million. This consisted primarily of a net loss of $499.1 million, an increase in our net operating assets of $271.8 million, partially offset by non-cash charges of $100.1 million. The non-cash charges of $100.1 million primarily consisted of $83.0 million for stock-based compensation expense and an unrealized loss of $20.9 million on our equity investment, partially offset by $28.1 million gain related to a change in estimated profit-sharing constraint from the 2020 GSK Agreement. The change in our net operating assets of $271.8 million was primarily due to a $316.9 million decrease in accrued liabilities and other long-term liabilities related to settlement of profit-sharing constraint.
During the nine months ended September 30, 2022, net cash provided by operating activities was $1.6 billion. This consisted primarily of net income of $617.4 million, non-cash charges of $475.1 million, and an increase in our net operating assets of $535.5 million. The change in our net operating assets of $535.5 million was primarily due to a decrease in collaboration receivable by $491.9 million resulting from our profit-share from the sales of sotrovimab and an increase in accrued liabilities and other long-term liabilities by $65.1 million due to timing of payments, partially offset by a $24.5 million decrease in deferred revenue primarily driven by GSK's first option exercise under the 2021 GSK Agreement and Brii Bio's exercise for VIR-3434, partially offset by the grants received from Bill & Melinda Gates Foundation. The non-cash charges of $475.1 million primarily consisted of $353.5 million for change in estimated constraint on profit-sharing amount, an unrealized loss of $120.0 million on our equity investment, $77.2 million for stock-based compensation expense, $7.9 million for revaluation of contingent consideration, $6.5 million for noncash lease expense and $4.4 million for depreciation and amortization expense, partially offset by $93.8 million for payment for contingent consideration in excess of acquisition date fair value.
Investing Activities
During the nine months ended September 30, 2023, net cash provided by investing activities was $269.4 million. This consisted primarily of $1.5 billion in proceeds received from investments that matured during the period, partially offset by purchases of investments of $1.2 billion and property and equipment of $20.0 million.
During the nine months ended September 30, 2022, net cash used in investing activities was $1.0 billion. This consisted primarily of purchases of investments of $1.1 billion and property and equipment of $55.4 million, partially offset by $84.8 million in proceeds received from investments that matured during the period.
Financing Activities
During the nine months ended September 30, 2023, net cash provided by financing activities was $5.8 million. This consisted primarily of proceeds from exercises of stock options of $3.4 million and from the issuance of common stock under our employee stock purchase plan of $2.6 million.
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During the nine months ended September 30, 2022, net cash provided by financing activities was $32.8 million. This consisted primarily of proceeds from the issuance of our common stock to the Bill & Melinda Gates Foundation of $28.5 million under the stock purchase agreement, from exercises of stock options of $3.6 million, and from issuance of common stock under our employee stock purchase plan of $2.1 million, partially offset by $1.2 million for payment of contingent consideration.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the 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 nine months ended September 30, 2023, as compared with those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rate and market price sensitivities.
Interest Rate Risk
We had cash, cash equivalents and restricted cash and cash equivalents of $472.4 million as of September 30, 2023, which primarily consisted of money market funds. We also had short-term and long-term investments of $1.3 billion as of September 30, 2023. The primary objective of our investment activities is to preserve capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. Because our investments are primarily short-term in duration and our holdings in U.S. government treasury bonds mature prior to our expected need for liquidity, we believe that our exposure to interest rate risk is not significant, and one percent movement in market interest rates would not have a significant impact on the total value of our portfolio. We had no debt outstanding as of September 30, 2023.
Foreign Currency
The functional currency of our foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at period end exchange rates and non-monetary assets and liabilities are translated to U.S. dollars using historical exchange rates. Revenue and expenses are translated at average rates throughout the respective periods. As of the date of this Quarterly Report on Form 10-Q, we are exposed to foreign currency risk primarily related to the operations of our Swiss and Australian subsidiaries and our collaboration with GSK and consequently the Swiss Franc, Australian dollar and British pound. Transaction gains and losses are included in other income (expenses), net on the unaudited condensed consolidated statements of operations and were not material for the three and nine months ended September 30, 2023 and 2022.
Equity Investment Risk
We hold ordinary shares of Brii Bio Parent, which we acquired in connection with our collaboration, option and license agreement. These equity securities are measured at fair value with any changes in fair value recognized in our unaudited condensed consolidated statements of operations. The fair value of these equity securities was approximately $10.8 million as of September 30, 2023. Changes in the fair value of these equity securities are impacted by the volatility of the stock market and changes in general economic conditions, among other factors. A hypothetical 10% increase or decrease in the stock price of these equity securities would increase or decrease their fair value as of September 30, 2023 by approximately $1.1 million.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our fiscal quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have an adverse effect on our business, operating results or financial condition.
Item 1A. Risk Factors.
An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following risk factors as well as the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and/or prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this Quarterly Report on Form 10-Q and those we may make from time to time. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. You should consider all of the risk factors described when evaluating our business.
Risk Factors Summary
Our business is subject to a number of risks of which you should be aware before making a decision to invest in our common stock. These risks include, among others, the following:
We have incurred net losses and anticipate that we will continue to incur net losses in the foreseeable future.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We may require substantial additional funding to finance our operations. If we are unable to raise capital when needed, we could be forced to delay, reduce or terminate certain of our development programs or other operations.
Although we have an Emergency Use Authorization, or EUA, from the U.S. Food and Drug Administration, or FDA, for sotrovimab for the early treatment of COVID-19, the disease caused by the virus SARS-CoV-2, the FDA has excluded the use of sotrovimab in all U.S. regions, and sotrovimab has limitations on its use in some countries outside of the U.S. We do not expect meaningful sales if the FDA grants reauthorization of sotrovimab in the U.S.
Market demand and utilization of any of our COVID-19 product candidates has been, and may continue to be, adversely impacted by factors such as the development of monoclonal antibodies, or mAbs, of other third parties, the rollout of oral antivirals and vaccines, the emergence of new variants or subvariants and the current challenges in the delivery and administration of mAbs to patients.
Our future success is substantially dependent on the successful clinical development, regulatory approval and commercialization of our product candidates in a timely manner. If we are not able to obtain required regulatory approvals, we will not be able to commercialize our product candidates and our ability to generate product revenue will be adversely affected.
Success in preclinical studies or earlier clinical trials may not be indicative of results in future clinical trials and we cannot assure you that any ongoing, planned or future clinical trials will lead to results sufficient for the necessary regulatory approvals and marketing authorizations. We have and may continue to commit substantial financial resources with respect to clinical trials that may not be successful, and we may not be able to recoup those investments.
Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be delayed, made more difficult or rendered impossible by multiple factors outside our control.
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We are a party to strategic collaboration and license agreements pursuant to which we are obligated to make substantial payments upon achievement of milestone events and, in certain cases, have relinquished important rights over the development and commercialization of certain current and future product candidates. We also intend to explore additional strategic collaborations, which may never materialize or may require that we relinquish rights to and control over the development and commercialization of our product candidates.
We rely on third parties to produce clinical and commercial supplies of our product candidates.
If we are unable to obtain and maintain patent protection for our product candidates and technology, or if the scope of the patent protection obtained is not sufficiently broad or robust, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our product candidates and technology may be adversely affected.
We are highly dependent on our key personnel, and if we are not able to retain these members of our management team or recruit and retain additional management, clinical and scientific personnel, our business will be harmed.
If our information systems, or those maintained on our behalf, fail or suffer security breaches, such events could result in, without limitation, the following: a significant disruption of our product development programs; an inability to operate our business effectively; unauthorized access to or disclosure of the personal information we process; and other adverse effects on our business, financial condition, results of operations and prospects.
The market price of our common stock has been, and in the future, may be, volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock.
Risks Related to Our Financial Position and Capital Needs
We have incurred net losses and anticipate that we will continue to incur net losses in the foreseeable future.
Although we recorded net income for the years ended December 31, 2022, and 2021, we have otherwise incurred net losses since inception in April 2016. We had net loss of $499.1 million and net income of $617.4 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, we had an accumulated deficit of $121.9 million.
We expect to continue to incur significant expenses and will continue to incur net losses in the foreseeable future. Since inception, we have devoted substantially all of our efforts to identifying, researching and conducting preclinical and clinical activities of our product candidates, acquiring and developing our technology platforms and product candidates, organizing and staffing our company, business planning, raising capital and establishing our intellectual property portfolio.
We received an Emergency Use Authorization, or EUA, from the U.S. Food and Drug Administration, or FDA, for sotrovimab. In March and April 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 this EUA revision, sotrovimab is not currently authorized for use in any U.S. region, and we cannot predict whether (if at all) or to what extent sotrovimab may be reauthorized for use by the FDA in any U.S. region in the future. In addition, there can be no assurance with respect to how long the EUA will remain in effect or whether the EUA will be further revised or revoked by the FDA following the termination of the underlying public health emergency declaration on May 11, 2023 or for other reasons. Furthermore, due to the evolving COVID-19 landscape and based on discussions with the FDA, we and Glaxo Wellcome UK Limited and GlaxoSmithKline Biologicals S.A. (individually and collectively referred to as GSK) do not plan to file a Biologics License Application, or BLA, for sotrovimab at this time.
We received a positive scientific opinion from the Committee for Human Medicinal Products, or CHMP, in the European Union, or EU, for sotrovimab and to date, sotrovimab has obtained emergency authorization, temporary authorization or marketing approval (under the brand name Xevudy®) for early treatment of COVID-19, and has been supplied in more than 40 countries. However, foreign regulatory authorities may impose similar limitations to the FDA on the use of sotrovimab in jurisdictions where sotrovimab has been granted EUA, temporary authorization or marketing
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approval. For example, although certain countries outside the U.S. continue to maintain access to 500 mg IV while noting that the clinical efficacy is unknown or uncertain against existing and emerging Omicron variants, we cannot predict whether other countries will further limit the use of sotrovimab.
Furthermore, based on the evolving COVID-19 landscape and our expectations for future sales in light of these factors, there are no assurances that we will secure future supply commitments from governments. In addition, 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.
It could be several years, if ever, before we are able to commercialize any of our other product candidates. Any net losses we incur may fluctuate significantly from quarter to quarter and year to year. To remain profitable, we must succeed in developing and eventually commercializing products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials of our current and future product candidates, obtaining regulatory approval, procuring commercial-scale manufacturing and marketing and selling any products for which we obtain regulatory approval (including through third parties), as well as discovering or acquiring and developing additional product candidates. We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, may not be able to continue to generate revenue that is sufficient to offset our expenses and maintain profitability.
Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict the timing or amount of expenses, or if we will be able to maintain profitability. If we are required by regulatory authorities to perform studies and trials in addition to those currently expected, or if there are any delays in the initiation and completion of our clinical trials or the development of any of our product candidates, our expenses could increase.
We could be required to perform additional studies and trials on sotrovimab based on any additional feedback we may receive from the regulatory and health authorities. For example, we and GSK continue to conduct in vitro testing of sotrovimab against new variants and subvariants as they emerge, and to collect and evaluate real-world evidence, both of which are being shared with regulatory authorities.
We may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to return to being profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We are a company founded in April 2016 and our operations to date have been largely focused on identifying, researching and conducting preclinical and clinical activities of our product candidates, acquiring and developing our technology platforms and product candidates, organizing and staffing our company, business planning, raising capital and establishing our intellectual property portfolio. Sotrovimab has received marketing authorization in the EU and has been granted emergency authorization, temporary authorization or marketing approval (under the brand name Xevudy®), and has been supplied in more than 40 countries. Although certain countries outside the U.S. continue to maintain access to 500 mg IV while noting that the clinical efficacy is unknown or uncertain against existing and emerging Omicron variants, we cannot predict whether other countries will further limit the use of sotrovimab.
Furthermore, although we have an EUA from the FDA for sotrovimab, the FDA has excluded the use of sotrovimab in all U.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 any U.S. region, and we cannot predict whether (if at all) or to what extent sotrovimab may be reauthorized for use by the FDA in any U.S. region in the future. In addition, due to the evolving COVID-19 landscape and based on discussions with the FDA, we and GSK do not plan to file a BLA for sotrovimab at this time. Moreover, even if we were to file a BLA or marketing applications in other jurisdictions, 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. As an organization, we have not yet demonstrated an ability to successfully manufacture a BLA-approved, commercial-scale product or conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operating
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history. We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives, including with respect to our technology platforms and product candidates.
We may require substantial additional funding to finance our operations. If we are unable to raise capital when needed, we could be forced to delay, reduce or terminate certain of our development programs or other operations.
As of September 30, 2023, we had cash, cash equivalents and investments of $1.7 billion. Based upon our current operating plan, we believe that the $1.7 billion as of September 30, 2023 will fund our current operating plans 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. 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. Other unanticipated costs may also arise. Because the design and outcome of our clinical trials are highly uncertain, we cannot reasonably estimate the actual amount of resources and funding that will be necessary to successfully complete the development and commercialization of our product candidates or any future product candidates that we develop.
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. Our future capital requirements will depend on many factors, including:
the timing, progress and results of our ongoing preclinical studies and clinical trials of our product candidates;
the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials of other product candidates that we may pursue;
our ability to establish and maintain collaboration, license, grant and other similar arrangements, and the opt-in mechanisms contained in, and the financial terms of, any such arrangements, including timing and amount of any future milestones, royalty or other payments due thereunder;
the costs, timing and outcome of regulatory review of our product candidates;
the costs and timing of commercialization activities, including product manufacturing, marketing, sales and distribution, for our product candidates for which we receive marketing approval;
the amount of revenue received from commercial sales of any product candidates for which we receive marketing approval;
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
any expenses needed to attract, hire and retain skilled personnel;
the costs of operating as a public company; and
the extent to which we acquire or in-license other companies’ product candidates and technologies.
General economic conditions, both inside and outside the U.S., including heightened inflation, capital market volatility, interest rate and currency rate fluctuations, and economic slowdown or recession as well as the COVID-19 pandemic, including the evolution of new and existing variants of COVID-19, and geopolitical events, including civil or political unrest (such as the ongoing war between Israel and Hamas and Ukraine and Russia), have 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. In addition, market volatility, high levels of inflation and interest rate fluctuations may increase our cost of financing or restrict our access to potential sources of future liquidity. Adequate additional financing may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or altogether terminate our
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research and development programs or commercialization efforts, which may adversely affect our business, financial condition, results of operations and prospects. In addition, we may seek additional capital due to favorable market conditions or strate