# Vir Biotechnology, Inc. (VIR) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Vir Biotechnology, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1706431/000095017023005118/vir-20221231.htm
Accession: 0000950170-23-005118
Filing date: 2023-02-28
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/VIR/
All MD&A years: /company/VIR/mda/
Previous year: /company/VIR/mda/fy2021/ (FY 2021)
Next year: /company/VIR/mda/fy2023/ (FY 2023)

Item 7. 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 audited consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Unless the context requires otherwise, references in this Annual Report on Form 10-K to the “Company”, “Vir,” “we,” “us” and “our” refer to Vir Biotechnology, Inc. and its consolidated subsidiaries.

Our discussion and analysis below are focused on our financial results and liquidity and capital resources for the years ended December 31, 2022 and 2021, including year-over-year comparisons of our financial performance and condition for these years. Discussion and analysis of the year ended December 31, 2020 specifically, as well as the year-over-year comparison of our financial performance and condition for the years ended December 31, 2021 and 2020, are located in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 28, 2022. For a detailed discussion on our business environment, please read Item 1. Business, included in this Annual Report on Form 10-K. For additional information on the risks that could negatively impact our business, please read Item 1A. Risk Factors, included in this Annual Report on Form 10-K.

Overview

We are a commercial-stage immunology company focused on combining immunologic insights with cutting-edge technologies to treat and prevent serious infectious diseases. Infectious diseases are among the leading causes of death worldwide and can cause trillions of dollars of direct and indirect economic burden each year – as evidenced by the coronavirus disease 2019, or COVID-19, pandemic. We believe that now is the time to apply the recent and remarkable advances in immunology to combat current and prepare for future infectious diseases. Our approach begins with identifying the limitations of the immune system in combating a particular pathogen, the vulnerabilities of that pathogen and the reasons why previous approaches have failed. We then bring to bear powerful technologies that we believe, individually or in combination, will lead to effective therapies.

Our current pipeline consists of sotrovimab (previously VIR-7831; and where marketing authorization has been granted, marketed under the brand name Xevudy®) and other product candidates targeting hepatitis B virus, or HBV, hepatitis D virus, or HDV, influenza A virus, COVID-19, and human immunodeficiency virus, or HIV. We have assembled four technology platforms, focused on antibodies, T cells, innate immunity and small interfering ribonucleic acid, or siRNA, through internal development, collaborations and acquisitions. We have built an industry-leading team that has deep experience in immunology, infectious diseases, and product development and commercialization. Given the global impact of infectious diseases, we are committed to developing cost-effective treatments that can be delivered at scale.

HBV

VIR-2218 is an investigational HBV-targeting siRNA, and VIR-3434 is an investigational HBV-neutralizing mAb that incorporates Xencor’s Xtend and other Fc technologies.

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In November 2022, at the American Association for the Study of Liver Diseases, or AASLD, The Liver Meeting®, we presented new data from multiple ongoing trials evaluating the potential for VIR-2218 and VIR-3434 to achieve a functional cure for chronic HBV, as well as health outcomes research. Highlights included:

o
Initial Phase 2 end-of-treatment data demonstrated that 30.8% of participants receiving 48 weeks of VIR-2218 plus IFN-α achieved hepatitis B surface antigen, or HBsAg seroclearance and each of those participants also achieved seroconversion, suggesting an improvement in those participants’ immune function (anti-HBs levels 10mIU/mL). No safety signals have been reported to date. Additional data are expected in the first half of 2023.

o
Initial end-of-treatment results from Part A of the Phase 2 Monoclonal Antibody siRNA Combination against Hepatitis B, or MARCH, trial demonstrated mean HBsAg reductions of ≥2.7 log10 IU/mL across all three cohorts. These data show that VIR-2218 and VIR-3434 are additive in reducing HBsAg. No safety signals have been reported to date. Additional data from Part A are expected in the first half of 2023. Initial data from Part B, evaluating VIR-2218 in combination with VIR-3434 for 24 and 48 weeks, and in triple combination with VIR-3434 and IFN-α for 24 and 48 weeks, are expected in the second half of 2023.

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Initiation of the Phase 2 PREVAIL platform trial and its THRIVE/STRIVE sub-protocols of VIR-3434 and/or VIR-2218 and/or IFN-α in viremic patients is expected in the first half of 2023. The THRIVE sub-protocol will evaluate inactive carriers defined as adults with chronic HBV that are HBeAg negative with HBV DNA ≤2000 IU/mL and ALT ≤ ULN. The STRIVE sub-protocol will evaluate immune active, treatment-naïve patients defined as adults with chronic HBV who have not received prior NRTIs, or IFN-α therapy and are HBeAg positive or negative with HBV DNA 2000 IU/mL, ALT ULN and ≤ 5× ULN. Initial data are expected in the first half of 2024.

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•
In February 2022, initial data from the Phase 2 trial led by Brii Biosciences evaluating VIR-2218 in combination with BRII-179, an investigational T cell vaccine, for the potential treatment of chronic HBV infection were presented at the Asian Pacific Association for the Study of the Liver. Although the combination of VIR-2218 and BRII-179 had greater anti-HBs responses and improved HBsAg-specific T-cell responses, comparable HBsAg reduction was observed in all cohorts at end of treatment (-1.7-1.8 log10 IU/mL). The combination of VIR-2218 and BRII-179 was generally well tolerated.

HDV

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Initial data from the Phase 2 SOLSTICE trial, which began in September 2022, evaluating VIR-2218 and VIR-3434 as monotherapy and in combination for the treatment of people living with chronic HDV, the most aggressive form of viral hepatitis, are expected in the second half of 2023.

Influenza A virus

VIR-2482 is an investigational influenza A-neutralizing mAb.

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In October 2022, we initiated the groundbreaking Phase 2 Prevention of Illness Due to Influenza A (PENINSULA) trial evaluating VIR-2482, and in December 2022, we achieved the target enrollment of approximately 3,000 participants. This is the first Phase 2 outpatient trial to evaluate the role of a mAb in the prevention of influenza A illness. The primary efficacy endpoint is the proportion of trial participants with protocol-defined influenza illness, requiring one systemic symptom and one respiratory symptom, with confirmed influenza A infection compared to placebo. Other endpoints will evaluate the effect of VIR-2482 on the severity and duration of illness in trial participants with confirmed influenza A compared to placebo. Initial data are expected in mid-2023. The PENINSULA trial is being supported in part with federal funds from the Department of Health and Human Services, or HHS; Administration for Strategic Preparedness and Response, or ASPR; and Biomedical Advanced Research and Development Authority, or BARDA, under Other Transaction Number: 75A50122C00081.

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In August 2022, we initiated the Phase 1b prophylaxis trial evaluating the safety of VIR-2482 in adults aged 65 and older receiving a flu vaccine, and initial data are expected in mid-2023.

COVID-19

Sotrovimab is an investigational severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, neutralizing monoclonal antibody, or mAb, that incorporates Xencor, Inc.'s, or Xencor, Xtend™ technology.

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In 2022, a total of approximately 1.5 million doses were delivered worldwide.

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Sotrovimab has obtained emergency authorization, temporary authorization or marketing approval (under the brand name Xevudy®️) for early treatment of COVID-19, supplying more than 40 countries. Sotrovimab is not authorized in the U.S.

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In February 2023, the U.K.’s National Institute for Health and Care Excellence (NICE) provided positive final draft guidance recommending the use of sotrovimab in adults who do not need supplemental oxygen for COVID-19 and who have an increased risk for progression to severe COVID-19 where nirmatrelvir/ritonavir (Paxlovid) is contraindicated or unsuitable.

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In February of 2022, Vir and GSK amended their existing agreement to reflect that:

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We will continue to discover, develop and advance next-generation solutions for COVID-19 and other potential coronavirus outbreaks, independently or with other partners.

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We and GSK will continue working together to ensure ongoing access to sotrovimab for patients around the world, where authorized, and to develop new therapies for influenza and other respiratory diseases.

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HIV

VIR-1111 is an investigational HIV T cell vaccine based on human cytomegalovirus, or HCMV, and VIR-1388 is a preclinical HIV T cell vaccine based on HCMV.

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Safety and immunology data from the initial two cohorts of the proof-of-concept Phase 1 trial of VIR-1111 show no safety signals and no vector shedding or viremia reported to date. No sustained HIV insert-specific T cell responses have been observed in the lower dose cohorts 1 and 2. Safety and immunology data from the highest dose cohort 3 of the proof-of-concept Phase 1 trial of VIR-1111 are anticipated in the first half of 2023. This trial is being funded in part by the Bill & Melinda Gates Foundation.

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Initiation of a Phase 1 trial of VIR-1388, a novel vector that has the potential to have enhanced immunogenicity, is expected in the second half of 2023. This trial is being funded in part by the Bill & Melinda Gates Foundation and the National Institutes of Health’s Division of AIDS through the HIV Vaccine Trials Network.

Financial Overview

We were incorporated in April 2016 and commenced principal operations later that year. To date, we have focused primarily on organizing and staffing our company, business planning, raising capital, identifying, acquiring, developing and in-licensing our technology platforms and product candidates, and conducting preclinical studies and clinical trials.

We have financed our operations primarily through sales of our common stock from our initial public offering, subsequent follow-on offering and convertible preferred securities, and payments received under our grant and collaboration agreements. As of December 31, 2022, we had $2.4 billion in cash, cash equivalents, and investments. Based upon our current operating plan, we believe that the $2.4 billion will enable us to fund our operations for at least the next 12 months. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional financing to fund our long-term operations sooner than planned. See the section titled “Liquidity, Capital Resources and Capital Requirements—Future Funding Requirements” below for additional information.

Although we recorded net income for the years ended December 31, 2022 and 2021, we have otherwise incurred net losses since inception and may continue to incur net losses in the foreseeable future. To date, sotrovimab has been granted emergency authorization, temporary authorization or marketing approval (under the brand name Xevudy®), supplying more than 40 countries. 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. 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. Furthermore, 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 of the U.S., such as Canada and Japan, continue to maintain access to sotrovimab 500 mg IV while noting that it is unlikely to maintain efficacy against certain Omicron subvariants, we cannot predict whether other countries will further limit the use of sotrovimab. We have not obtained regulatory approval for any other product candidates, and we do not expect to generate significant revenue from the sale of our other product candidates until we complete clinical development, submit regulatory filings and receive approvals from the applicable regulatory bodies for such product candidates, if ever.

Our net income was $515.8 million and $528.6 million for the years ended December 31, 2022 and 2021, respectively. Our net loss was $298.7 million for the year ended December 31, 2020. As of December 31, 2022, we had retained earnings of $377.2 million. Our primary use of our capital resources is to fund our operating expenses, which consist primarily of expenditures related to identifying, acquiring, developing, manufacturing and in-licensing our technology platforms and product candidates, and conducting preclinical studies and clinical trials, and to a lesser extent, selling, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. Although we began recognizing revenue for sotrovimab and have substantial deferred revenue under our definitive collaboration agreement with GSK executed in May 2021, or the 2021 GSK Agreement, we may continue to incur net operating losses for at least the next several years as the extent of future revenue remains uncertain. In particular, we expect our expenses and losses to increase as we continue our research and development efforts, advance our product candidates through preclinical and clinical development, seek regulatory approval, and prepare for commercialization, as well as hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company. We also expect to increase the size of our administrative functions to support the growth of our business. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

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We are currently manufacturing product candidates from three of our platforms: antibodies, T cells and siRNAs. We have established our own internal process development, manufacturing and quality capabilities and are working with contract development and manufacturing organizations, or CDMOs, to supply our early- and late-stage product candidates in the near term. We continue to expand our internal capabilities and resources in process development, analytical development, quality, manufacturing and supply chain, which are supported by our San Francisco, California, and Portland, Oregon facilities that include laboratories for process development, production of HCMV research viral seed stock and selected quality control testing for our product candidates. We have established relationships with multiple CDMOs and have produced material to support preclinical studies and Phase 1 through Phase 3 clinical trials. Material for Phase 3 clinical trials and commercial supply will generally require large-volume, low-cost-of-goods production. For example, for sotrovimab, we and our collaborator GSK have executed manufacturing agreements with CDMOs having large-scale capacity to support future scale-up and product supply, particularly for potential commercialization.

COVID-19 Business Update and Macroeconomic Uncertainties

We have implemented a number of plans and policies designed to address and mitigate the impact of the COVID-19 pandemic on our employees and our business. We continue to closely monitor the COVID-19 situation and will evolve our plans and policies as needed going forward. As a result of these developments, in March 2020, we implemented work-from-home policies for most of our employees. We now offer all our employees the choice of working full time in the office, a hybrid approach, or full-time remote. As a result, we expect to continue to be subject to the challenges and risks of having a remote workforce, as well as new challenges and risks from operating with a hybrid workforce. We are working closely with our CDMOs to manage our supply chain activities and mitigate any potential disruptions to our clinical trial supplies as a result of the COVID-19 pandemic. However, there are no assurances that our manufacturing and supply chain infrastructure will remain uninterrupted and reliable, or that the CDMOs will be able to satisfy demand in a timely manner and not have supply chain disruptions due to COVID-19 related shutdowns, stock-outs due to raw material shortages and/or greater than anticipated demand or quality issues given the operational challenges and raw material shortages that have been experienced during the COVID-19 pandemic. In addition, we rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic.

In addition to the impacts described above, the global economy, including the financial and credit markets, has recently experienced extreme volatility and disruptions, including increases to inflation rates, rising interest rates, declines in consumer confidence, declines in economic growth, and uncertainty about economic stability. The severity and duration of the impact of these conditions on our business cannot be predicted.

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 the section titled “Business—Our Collaboration, License and Grant Agreements” and Note 6—Grant Agreements and Note 7—Collaboration and License Agreements to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Components of Operating Results

Revenues

To date, sotrovimab has been granted emergency authorization, temporary authorization or marketing approval (under the brand name Xevudy®), supplying more than 40 countries. Although we have previously recognized revenue from our profit-share under our definitive collaboration agreement with GSK executed in June 2020, or the 2020 GSK Agreement, related to sotrovimab, we may continue to incur net operating losses for at least the next several years as the extent of future revenue from the sale of sotrovimab remains uncertain. Although we have an EUA from the FDA for sotrovimab, the FDA has excluded the use of sotrovimab in 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 of the U.S., such as Canada and Japan, continue to maintain access to sotrovimab 500 mg IV while noting that it is unlikely to maintain efficacy against certain Omicron subvariants, we cannot predict whether other countries will further limit the use of sotrovimab. 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. 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.

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Our revenues consist of the following:

Collaboration revenue includes recognition of our profit-share from the sales of sotrovimab pursuant to the 2020 GSK Agreement. Our contractual share of 72.5% from the sales of sotrovimab is applied to the net sales reported in the period by GSK, net of cost of goods sold and allowable expenses from both GSK and us (e.g., manufacturing, distribution, medical affairs, selling, and marketing expenses). In order to record collaboration revenue, we utilize certain information from our collaboration partner, including actual net product sales and costs incurred for sales activities, and make key judgments based on business updates related to commercial and clinical activities such as expected commercial demand, commercial supply plan, manufacturing commitments, risks related to expired or obsolete inventories, and risks related to potential product returns or contract terminations.

Constraint on variable consideration

In May 2021, the FDA granted an EUA in the U.S. for sotrovimab. In April 2022, the FDA excluded the use of sotrovimab in all U.S. regions due to the continued proportion of COVID-19 cases caused by certain Omicron subvariants. As the lead party for all manufacturing and commercialization activities, GSK incurs all of the manufacturing, sales and marketing expenses and is the principal on sales transactions with third parties. Our accounting policy related to the profit-share is to consider the agreed-upon share of the profit-sharing amounts each quarter and evaluate whether those amounts are subject to potential future adjustments based on the latest available facts and circumstances, subject to the terms of the 2020 GSK Agreement.

As we are the agent under the 2020 GSK Agreement, we recognize our contractual share of the profit-sharing amounts or royalties (in case of an opt-out) as revenue, based on sales net of estimated various deductions such as rebates, discounts, chargebacks, credits and returns, less cost of sales and allowable expenses (including manufacturing, distribution, medical affairs, selling, and marketing expenses) in the period the sale occurs. Manufacturing costs include inventory revaluation adjustments, lower of cost or market inventory adjustments, inventory write-downs and write-offs, and binding purchase commitments with a third-party manufacturer among other manufacturing costs. Our contractual share of the profit-sharing amounts is subject to potential future adjustments to allowable expenses, which we account for as a form of variable consideration.

As of December 31, 2022, GSK held certain potentially excess binding supply manufacturing commitments of sotrovimab and reserved certain binding manufacturing capacity potentially not expected to be utilized, which have not yet been reported to us as allowable manufacturing expenses for the cumulative profit-sharing amounts to date. We expect GSK to adjust allowable manufacturing expenses for our share of the potential charge for excess supply write-offs and unused binding manufacturing capacity and report to us as cost-sharing amounts in future periods. We evaluated the latest available facts and circumstances to determine whether any portion of profit-sharing amounts should be constrained. In doing so, as of December 31, 2022, based on the current state of the COVID-19 pandemic, including the continued proportion of cases caused by certain Omicron subvariants, discussions with the FDA and other regulatory authorities, and our expectations for future sales in light of these factors, we revised our estimates and determined that $369.7 million should be constrained from profit-sharing revenues earned in relation to our anticipated contractual share of potential future adjustments to manufacturing expenses and recorded such amount as adjustments to profit-sharing amounts recognized in the year ended December 31, 2022 and accrued and other liabilities. We will re-assess these estimates each reporting period. Actual results could materially differ from this estimate.

Contract revenue includes recognition of revenue generated from license rights issued to GSK, from research and development services under other third-party contracts, and from a clinical supply agreement with Brii Bio, a related party.

Grant revenue is comprised of revenue derived from grant agreements with government-sponsored and private organizations.

License revenue from a related party is comprised of revenue related to Brii Bio’s exercise of its option to obtain exclusive rights to develop and commercialize compounds arising from VIR-3434 in mainland China, Hong Kong, Macau and Taiwan recognized in the year ended December 31, 2022.

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.

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Research and Development

To date, our research and development expenses have related primarily to discovery efforts and preclinical and clinical development of our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. We do not track research and development expenses by product candidate.

Research and development expenses consist primarily of costs incurred for our product candidates in development and prior to regulatory approval, which include:

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expenses related to license and collaboration agreements, and change in fair value of certain contingent consideration obligations arising from business acquisitions;

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personnel-related expenses, including salaries, benefits and stock-based compensation for personnel contributing to research and development activities;

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expenses incurred under agreements with third-party contract manufacturing organizations, contract research organizations, and consultants;

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clinical costs, including laboratory supplies and costs related to compliance with regulatory requirements; and

•
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®), supplying more than 40 countries. 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. 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, 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 of the U.S., such as Canada and Japan, continue to maintain access to sotrovimab 500 mg IV while noting that it is unlikely to maintain efficacy against certain Omicron subvariants, 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, 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:

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whether a collaborator is paying for some or all of the costs;

•
per patient trial costs;

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the number of trials required for approval;

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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;

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the length of time required to enroll eligible patients;

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•
the number of patients that participate in the trials;

•
the number of doses that patients receive;

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the drop-out or discontinuation rates of patients;

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potential additional safety monitoring requested by regulatory agencies;

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the duration of patient participation in the trials and follow-up;

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the cost and timing of manufacturing our product candidates;

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the phase of development of our product candidates; and

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the efficacy and safety profile of our product candidates.

Selling, General and Administrative

Our selling, general and administrative expenses consist primarily of personnel-related expenses for personnel in executive, finance and other administrative functions, facilities and other allocated expenses, other expenses for outside professional services, including legal, audit and accounting services, insurance costs and change in fair value of certain contingent consideration obligations arising from business acquisitions. Personnel-related expenses consist of salaries, benefits and stock-based compensation.

We expect our selling, general and administrative expenses to increase substantially in absolute dollars in the foreseeable future as we continue to support our 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 Securities and Exchange Commission, or 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 contingent consideration related to our acquisition of TomegaVax, Inc., or TomegaVax.

Provision for Income Taxes

Provision for income taxes consisted primarily of income tax on our domestic and foreign operations.

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Results of Operations

Comparison of Years Ended December 31, 2022 and 2021

The following table summarizes our results of operations for the periods presented:

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[[/GREPCENT_TABLE]]

Revenues

The increase in collaboration revenue for the year ended December 31, 2022 compared to the same period in 2021 was due to our profit-sharing arrangement with GSK for the sale of sotrovimab under the 2020 GSK Agreement. Our contractual share of 72.5% from the sales of sotrovimab is applied to the profit-sharing amounts, based on sales net of various estimated deductions such as rebates, discounts, chargebacks, credits and returns, less cost of sales and allowable expenses (including manufacturing, distribution, medical affairs, selling, and marketing expenses) in the period the sale occurs, and any amount constrained in relation to our anticipated contractual share of potential future adjustments to manufacturing expenses.

The decrease in contract revenue for the year ended December 31, 2022 compared to the same period in 2021 was primarily due to $168.3 million related to the license granted to GSK upon execution of the 2021 GSK Agreement, partially offset by $39.8 million recognized in 2022 related to GSK’s selection of respiratory syncytial virus, or RSV, as its first pathogen under the additional programs to develop neutralizing mAbs under the 2021 GSK Agreement, or First Option Exercise, and $7.0 million related to the additional license granted to GSK in mainland China, Hong Kong, Macau and Taiwan upon execution of the Amendment No. 1 to the 2020 GSK Agreement in the second quarter of 2022.

The increase in license revenue from a related party for the year ended December 31, 2022 compared to the same period in 2021 was due to $22.3 million related to Brii Bio’s exercise of its option to obtain exclusive rights to develop and commercialize compounds and products arising from VIR-3434 in China, Taiwan, Hong Kong and Macau. No comparable amount was incurred for the same period in 2021.

The increase in grant revenue for the year ended December 31, 2022 compared to the same period in 2021 was primarily due to the grant revenue recognized in connection with the BARDA agreement and the timing of research activities under the grant agreements with the Bill & Melinda Gates Foundation.

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Cost of Revenue

The increase in cost of revenue for the year ended December 31, 2022 compared to the same period in 2021 was due to 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:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

The increase in research and development expenses for the year ended December 31, 2022 compared to the same period in 2021 was primarily due to the following factors:

•
personnel-related expenses increased by $35.4 million, which was primarily attributable to an increase in our headcount;

•
clinical costs increased by $21.3 million, which was primarily attributable to activities related to VIR-2482, VIR-2218 and VIR-3434, partially offset by activities related to the clinical trials for sotrovimab in the same period of 2021;

•
contract manufacturing increased by $16.3 million, which was primarily related to an increase in manufacturing activities for our product candidates; and

•
other research and development expenses increased by $31.8 million, which was primarily attributable to the allocation of facilities and other costs due to an increase in our headcount, and higher outsource research and lab-related expenses;

partially offset by

•
licenses, collaborations and contingent consideration expenses decreased by $78.3 million, which was primarily attributable to a decrease of $50.6 million in costs under our collaboration agreements with GSK, and $37.2 million related to the change in fair value of the contingent consideration from our acquisition of Humabs BioMed SA, or Humabs, partially offset by $7.0 million recognized in connection with the termination of our development and manufacturing collaboration agreement with WuXi Biologics (Hong Kong) Limited, or WuXi Biologics.

Selling, General and Administrative Expenses

The increase in selling, general and administrative expenses for the year ended December 31, 2022 compared to the same period in 2021 was primarily due to higher personnel-related expenses related to additional headcount, external consulting services, business tax expenses related to increased profit-sharing amount and allocated facilities costs due to higher lease expenses. This was partially offset by $39.4 million in fair value of the contingent consideration related to sales-based milestones from our acquisition of Humabs that were achieved in 2021.

Change in Fair Value of Equity Investments

In July 2021, Brii Bio Parent became a publicly traded company on the Stock Exchange of Hong Kong Limited. In connection with the initial public offering, our investment in shares of Brii Bio Parent became a marketable equity investment and subsequently remeasured to fair value at each reporting period. For the year ended December 31, 2022, we recognized an unrealized loss of $111.1 million due to the change in fair value of the equity investment, compared to an unrealized gain of $138.0 million for the same period in 2021.

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Interest Income

The increase in interest income was primarily due to higher interest rates as well as higher balances of short-term and long-term investments, partially offset by higher amortization of premium on investment balances, for the year ended December 31, 2022 compared to the same period in 2021.

Other Income (Expense), Net

The increase in other income (expense), net for the year ended December 31, 2022 compared to the same period in 2021 was primarily due to the change in fair value of the contingent consideration related to our acquisition of TomegaVax.

Provision for Income Taxes

The increase in provision for income taxes for the year ended December 31, 2022 compared to the same period in 2021 was primarily due to taxable income for 2022 attributable to collaboration revenue under the 2020 GSK agreement and the requirement under the Tax Cuts and Jobs Act of 2017 for taxpayers to capitalize and amortize research and development expenditures over five or fifteen years pursuant to Section 174 of the Internal Revenue Code of 1986, as amended.

Liquidity, Capital Resources and Capital Requirements

Sources of Liquidity

To date, we have financed our operations primarily through sales of our common stock from our initial public offering and subsequent follow-on offering, sales of our convertible preferred securities, and payments received under our grant and collaboration agreements. As of December 31, 2022, we had $2.4 billion in cash, cash equivalents, and investments. As of December 31, 2022, we had retained earnings of $377.2 million. We entered into a sales agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, in 2020 pursuant to which we may from time to time offer and sell shares of our common stock for an aggregate offering price of up to $300.0 million, through or to Cowen, acting as sales agent or principal. We will pay Cowen a commission of up to 3.0% of the aggregate gross proceeds from each sale of shares, reimburse legal fees and disbursements and provide Cowen with customary indemnification and contribution rights. As of December 31, 2022, no shares have been issued under the Sales Agreement.

Our primary use of our capital resources is to fund our operating expenses, which consist primarily of expenditures related to identifying, acquiring, developing, manufacturing and in-licensing our technology platforms and product candidates, and conducting preclinical studies and clinical trials, and to a lesser extent, selling, general and administrative expenditures.

Future Funding Requirements

Based upon our current operating plan, we believe that our existing cash, cash equivalents and investments as of December 31, 2022 as noted above will enable us to fund our operations for at least the next 12 months. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional financing to fund our long-term operations sooner than planned. Moreover, it is particularly difficult to estimate with certainty our future revenue and expenses given the dynamic and rapidly evolving nature of our business and the COVID-19 pandemic environment generally. For example, in March 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 these EUA revisions, sotrovimab is not currently authorized for use in any U.S. region. In light of these developments, we cannot predict whether (if at all) or to what extent sotrovimab may be reauthorized for use by the FDA in 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. It is possible that the FDA and other regulatory authorities may not grant sotrovimab full marketing approval for the treatment of COVID-19, or that any such marketing approvals, if granted, may have similar or other significant limitations on its use.

We may also need to raise additional capital to complete the development and commercialization of our product candidates and fund certain of our existing manufacturing and other commitments. We expect to finance our cash needs through public or private equity or debt financings, third-party (including government) funding and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, licenses and other similar arrangements with third parties, we may have to

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relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. There can be no assurance that sufficient funds will be available to us on attractive terms or at all. If we are unable to obtain additional funding from these or other sources, it may be necessary to significantly reduce our rate of spending through reductions in staff and delaying, scaling back, or stopping certain research and development programs. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. 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 and geopolitical events, including civil or political unrest (such as the ongoing war between 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. and geopolitical events, including civil or political unrest (such as the ongoing war between Ukraine and Russia) have resulted in a significant disruption of global financial markets, 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.

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 2022 and 2033. As of December 31, 2022, we expect to make total lease payments of $175.0 million through 2033.

To date, we have entered into collaboration, license and acquisition agreements where the payment obligations are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones, and we are required to make royalty payments in connection with the sale of products developed under those agreements. For additional information regarding these agreements, including our payment obligations thereunder, see the sections titled “Business—Our Collaboration, License and Grant Agreements” and “Business—Our Acquisition Agreements,” as well as Note 4—Acquisitions and Note 7—Collaboration and License Agreements to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. For information related to our future commitments under our facilities and manufacturing agreements, see Note 9—Commitments and Contingencies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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:

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[[/GREPCENT_TABLE]]

Operating Activities

During the year ended December 31, 2022, net cash provided by operating activities was $1.7 billion. This consisted primarily of net income of $515.8 million, non-cash charges of $575.9 million, and an increase in our net operating assets of $665.4 million, partially offset by $93.8 million for payment for contingent consideration in excess of acquisition date fair value. The change in our net operating assets of $665.4 million was primarily due to a decrease in collaboration receivable by $770.0 million resulting from our profit-share from the sale of sotrovimab, partially offset by a $33.3 million decrease in deferred revenue primarily driven by GSK's First Option Exercise and Brii Bio's exercise for VIR-3434 netted with the grants received from Bill & Melinda Gates Foundation, an increase in prepaid expenses and other current assets by $39.4 million and an increase in other assets by $11.8 million, which are due to timing of payments. The non-cash charges of $575.9 million primarily consisted of $369.5 million for change in estimated

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constraint on profit-sharing amount, an unrealized loss of $111.1 million on our equity investment, $102.1 million for stock-based compensation expense and $8.7 million for noncash lease expense, partially offset by $15.2 million for deferred income tax.

During the year ended December 31, 2021, net cash used in operating activities was $47.6 million. This consisted primarily of net income of $528.6 million and non-cash charges of $203.3 million, offset by an unrealized gain of $138.0 million on our equity investment, payment of contingent consideration of $8.1 million for the achievement of a milestone related to our TomegaVax acquisition, a gain of $4.8 million from a sublease termination, and an increase in our net operating assets of $628.4 million. The change in our net operating assets of $628.4 million was primarily due to an increase in receivable from collaboration by $773.1 million resulting from our profit share from the sale of sotrovimab, and an increase in prepaid expenses and other current assets of $3.7 million, partially offset by an increase in deferred revenue of $92.0 million driven by the upfront fee received under the 2021 GSK Agreement, and an increase in accrued liabilities and other long-term liabilities of $58.5 million due to timing of payments. The non-cash charges of $203.3 million primarily consisted of $91.8 million for revaluation of contingent consideration, $83.8 million for stock-based compensation expense, $15.2 million for deferred income tax expense, $6.2 million for noncash lease expense, and $5.3 million for depreciation and amortization.

Investing Activities

During the year ended December 31, 2022, net cash used in investing activities was $1.2 billion. This consisted primarily of purchases of investments of $1.5 billion and property and equipment of $68.0 million, partially offset by $351.5 million in proceeds received from investments that matured during the period.

During the year ended December 31, 2021, net cash used in investing activities was $140.8 million. This consisted primarily of purchases of investments of $420.2 million and property and equipment of $21.8 million, partially offset by $301.2 million in proceeds received from investments that matured during the period.

Financing Activities

During the year ended December 31, 2022, net cash provided by financing activities was $34.8 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 $4.5 million, and from issuance of common stock under our employee stock purchase plan of $3.2 million, partially offset by $1.2 million for payment of contingent consideration.

During the year ended December 31, 2021, net cash provided by financing activities was $100.3 million. This consisted primarily of proceeds received from the issuance of our common stock to Glaxo Group Limited (an affiliate of GSK) of $85.2 million in March 2021, from exercises of stock options of $13.1 million, and from issuance of common stock under our employee stock purchase plan of $2.3 million.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our 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. The critical accounting policies, estimates and judgments that we believe to have the most significant impacts on our consolidated financial statements are described below. For more detail on our critical accounting policies, refer to Note 2—Summary of Significant Accounting Policies to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Revenue Recognition

Collaboration, License and Contract Revenue

Under Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, or ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods and services. To determine revenue recognition for arrangements within the scope of ASC 606, we perform 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 we satisfy a performance obligation.

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For collaborative arrangements that fall within the scope of ASC 808, Collaborative Arrangements, or ASC 808, we first determine which elements of the collaboration are deemed to be performance obligations 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, we apply 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 we are considered an agent in elements of collaboration arrangements within the scope of ASC 808, we record our share of collaboration revenue in the period in which such sales occur. We are 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 our 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, we utilize certain information from our collaboration partner, including actual net product sales, and costs incurred for sales activities, and make key judgments based on business updates related to commercial and clinical activities such as expected commercial demand, commercial supply plan, manufacturing commitments, risks related to expired or obsolete inventories, and risks related to potential product returns or contract terminations. We use these estimates to determine whether payments due to us under our collaboration arrangements, such as profit-share payments, should be recognized as revenues 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. For the periods covered in the financial statements presented, there have been no material changes to prior period estimates of revenues and expenses, except the profit-share amount constrained in the year ended December 31, 2022, as discussed in Note 7—Collaboration and License Agreements to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

We have entered into a number of license and collaboration agreements that fall within the scope of ASC 606. We evaluate the promised goods or services in these agreements to determine which ones represent distinct performance obligations. These agreements may include the following types of promised goods or services: (i) grants of licenses, (ii) performance of research and development services, and (iii) participation on joint research and/or development committees. They also may include options to obtain licenses to our intellectual property.

Prior to recognizing revenue, we make estimates of 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 and 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, we allocate the transaction price to each distinct performance obligation based on their estimated standalone selling prices, or SSP. We estimate the SSP for each distinct performance obligation by considering information such as market conditions, entity-specific factors, and information about our customer that is reasonably available to us. We consider estimation approaches that allow us 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. We also consider 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, and discount rate based on weighted-average cost of capital) to estimate the SSP of a distinct performance obligation requires significant judgment. Accordingly, these assumptions are subject to uncertainty, and changing the methodology and/or assumptions could materially impact the estimated SSP for distinct performance obligations, and as a result, the amount and/or timing of revenue recognition.

For performance obligations satisfied over time, we estimate the efforts needed to complete the performance obligation and recognize 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, we recognize 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.

Management may be required to exercise considerable judgment in estimating revenue to be recognized. Judgment is required in identifying performance obligations, estimating the transaction price, estimating the SSP of identified performance obligations, and estimating the progress towards satisfaction of performance obligations.

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Contingent Consideration and Embedded Derivatives

Contingent consideration related to business combinations and obligations required to be accounted for as embedded derivative financial instruments under Topic ASC 815, Derivatives and Hedging, are considered to be Level 3 instruments that are initially measured at their estimated fair values on the transaction date and subsequently remeasured with changes recorded in the consolidated statement of operations each subsequent reporting period.

The estimated fair value of the contingent consideration related to the Humabs acquisition was determined by calculating the probability-weighted clinical and regulatory milestone payments based on the assessment of the likelihood and estimated timing that certain milestones would be achieved, as well as use of a Monte Carlo simulation model that includes significant estimates and assumptions pertaining to commercialization events and sales targets. The most significant unobservable inputs are the probabilities of achieving clinical and regulatory approval of the development projects and the subsequent commercial success and discount rates.

The estimated fair value of the contingent consideration related to our acquisition of TomegaVax was determined based on a Monte Carlo simulation model that includes significant estimates and assumptions pertaining to probability and timing to achieve the required share price of our common stock, expected volatility and discount rate. Although the TomegaVax acquisition was accounted for as an asset acquisition, such contingent consideration met the definition of an embedded derivative financial instrument.

Recent Accounting Pronouncements Not Yet Adopted

See Note 2—Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition or results of operations.