Vir Biotechnology, Inc. — Q1 2020 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2020; balance-sheet comparisons are to December 31, 2019. Vir is a clinical-stage infectious-disease company with no approved products and no product-sales revenue. Its pipeline targets HBV, influenza A, SARS-CoV-2, HIV and TB. Unless noted otherwise, financial figures below are in millions of dollars.
Key financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $5.7 | $3.7 |
| Research and development expense | $65.0 | $25.9 |
| General and administrative expense | $12.6 | $8.6 |
| Operating loss | $(71.9) | $(30.8) |
| Net loss | $(77.2) | $(28.7) |
| Net loss per share, basic and diluted | $(0.71) | $(3.19) |
| Cash used in operating activities | $(48.4) | $(29.5) |
| Cash and cash equivalents | $168.4 at March 31 | $109.3 at December 31 |
| Cash, cash equivalents and investments, excluding restricted cash | $361.8 at March 31 | Management says this funds operations for at least 12 months from the financial-statement issuance date |
Revenue was primarily grant funding; the company had not earned product revenue or collaboration license, milestone or royalty revenue. Gross margin is not meaningful for this pre-commercial business. Weighted-average shares were 108.4 million in Q1 2020 versus 9.0 million in Q1 2019, so per-share loss comparisons are affected by the IPO and conversion of preferred stock.
At March 31, total assets were $477.1 million, total liabilities $96.8 million and stockholders’ equity $380.3 million. Current assets of $377.5 million exceeded current liabilities of $56.4 million. The filing reports no debt outstanding. Operating lease liabilities totaled $16.7 million; future operating lease payments were $19.9 million before $3.2 million of imputed interest.
Material changes and unusual items
- Revenue increased $2.1 million, mainly from higher Gates Foundation HIV grant revenue, including a supplemental award and reimbursement of some prior-period costs.
- R&D expense rose $39.1 million. The largest stated driver was a $31.8 million increase in license and collaboration expense associated with an Alnylam development milestone; personnel, clinical and COVID-19 program costs also increased. Lower contract manufacturing expense partly offset the increases.
- Other expense was $7.1 million versus $0.1 million in Q1 2019, primarily reflecting remeasurement of TomegaVax contingent consideration. The cash-flow reconciliation also identifies $16.8 million of non-cash derivative-liability remeasurement and $7.2 million of contingent-consideration remeasurement.
- On March 10, Vir achieved an Alnylam development milestone. It reclassified a $29.2 million derivative liability to equity; the associated 1,111,111 common shares were issued in May. A separate $15.0 million milestone payable was paid in April.
- Operating cash use increased $18.9 million year over year. Investing activities provided $104.2 million, mainly from investment maturities; financing activities provided $0.1 million, versus $317.4 million in Q1 2019 from preferred-stock issuance.
- Vir adopted lease accounting standard ASC 842 on January 1, 2020, recognizing $16.8 million of right-of-use assets and $17.5 million of lease liabilities at adoption; prior-year figures were not restated.
Outlook, developments and risks
- Management expects continued significant operating losses and higher R&D spending as programs advance. It says March 31 cash, cash equivalents and investments should cover obligations for at least 12 months from issuance of the financial statements, but substantial additional capital will be needed to execute the business plan.
- VIR-7831 and VIR-7832 showed high affinity for the SARS-CoV-2 spike protein and potent neutralization in live-virus cellular assays, according to the filing. Vir planned to begin a Phase 2 trial in summer 2020, subject to regulatory review. These candidates had not entered clinical trials as of the filing.
- VIR-2218 completed enrollment in an ongoing Phase 1/2 trial; data to date showed substantial HBsAg reduction and generally good tolerability. Vir also reported an ongoing Phase 1/2 trial of influenza candidate VIR-2482.
- COVID-19 could delay clinical-site initiation, enrollment and patient assessments, and disrupt supply chains. The filing specifically notes delays to trials for VIR-3434, VIR-1111 and VIR-2482. Vir also cautions that COVID-19-related investment may affect other programs.
- After quarter-end, GSK affiliate Glaxo Group Limited purchased 6,626,027 shares for approximately $250 million at $37.73 per share. A preliminary collaboration covers antibody, vaccine and functional-genomics programs for SARS-CoV-2 and potentially other coronaviruses, with development costs allocated differently by program and potential sharing of profits and losses.
- After quarter-end, Vir signed a binding Samsung letter agreement for SARS-CoV-2 antibody development and manufacturing capacity. The take-or-pay commitment is approximately $362 million for 2021–2022 slots, whether used or not, subject to annual Korean CPI adjustments; the parties planned to negotiate a definitive agreement.
- Vir’s key risks include clinical and regulatory failure, dependence on collaborators and contract manufacturers, additional financing needs, potential trial and manufacturing delays, competition, intellectual-property disputes and uncertainty around contingent milestone obligations. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether clinical data, regulatory review and trial initiation timelines for the SARS-CoV-2 candidates support management’s stated Phase 2 plans.
- The terms and execution of the GSK collaboration and the extent to which the approximately $250 million share issuance funds Vir’s plans.
- The definitive Samsung contract, including the approximately $362 million take-or-pay obligation, capacity utilization and payment schedule.
- Actual cash burn and runway as R&D spending increases, including the timing and terms of any additional financing.
- The financial and accounting effects of Alnylam milestone payments, contingent consideration revaluations and other collaboration obligations.
- The extent of COVID-19-related delays to clinical programs, manufacturing and supply, and any impact on non-COVID programs.