Vir Biotechnology, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results are compared with the same periods in 2021; balance-sheet figures are compared with December 31, 2021. Vir is a commercial-stage immunology company developing therapies for infectious diseases. Sotrovimab was its only currently available commercial product.
Financial results
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $374.6 | $103.6 | $1,566.4 | $282.7 |
| Cost of revenue | $22.3 | $7.8 | $140.3 | $9.0 |
| Research and development | $114.2 | $98.7 | $319.5 | $319.7 |
| Selling, general and administrative | $43.2 | $50.5 | $123.0 | $105.0 |
| Operating income (loss) | $195.0 | $(53.4) | $983.6 | $(151.0) |
| Net income | $175.3 | $110.4 | $617.4 | $3.3 |
| Diluted EPS | $1.30 | $0.82 | $4.58 | $0.02 |
- Revenue mix: Collaboration revenue was $309.1 million in Q3 and $1,483.9 million year to date, principally Vir’s sotrovimab profit share with GSK. Q3 contract revenue was $40.0 million, including $39.8 million recognized when GSK selected RSV under its expanded collaboration. Year-to-date related-party license revenue of $22.3 million reflected Brii Bio’s VIR-3434 option exercise.
- Margins: Calculated from reported revenue and cost of revenue, gross margin was approximately 94.1% in Q3 and 91.0% year to date. Operating margin was approximately 52.1% and 62.8%, respectively. These results reflect substantial collaboration revenue and should not be assumed to represent recurring product margins.
- Cash flow: Operating cash flow was $1,628.1 million for the nine months, versus cash used of $55.3 million in 2021. Investing used $1,040.3 million, including $1,069.8 million of investment purchases and $55.4 million of capital expenditures. Financing provided $32.8 million. Cash, cash equivalents and restricted cash increased $620.6 million to $984.0 million.
- Liquidity and debt: Cash, cash equivalents and investments totaled approximately $2.36 billion at September 30, 2022; current assets were $2,413.6 million and current liabilities were $308.2 million. The company reported no debt outstanding. Management said existing cash and investments should fund operations for at least 12 months from issuance of the statements.
- Balance-sheet changes: Total assets were $2,696.0 million, up from $1,954.3 million at year-end 2021. Stockholders’ equity increased to $2,149.9 million from $1,431.8 million. Cash and short-term investments rose substantially; the collaboration receivable declined from $773.1 million to zero.
Material changes and unusual items
- Revenue growth largely reflected sotrovimab collaboration profit share: total revenue increased 261% year over year in Q3 and 454% year to date. Nine-month collaboration revenue rose by $1,376.1 million versus 2021.
- Sotrovimab profit-share revenue is subject to variable-cost estimates. Vir disclosed a $379.5 million constraint against profit-sharing amounts earned in the first nine months for anticipated future manufacturing and selling expense adjustments. The revenue table reports $399.9 million of constrained amounts, net of a $20.4 million release; Q3 included a $20.4 million release and $2.4 million of additional constraint. Estimates may change materially.
- Net income included significant non-operating and noncash effects. The Brii Bio Parent equity investment generated a $120.0 million unrealized loss year to date, compared with a $164.1 million gain in the 2021 period. Q3 other income included a $26.0 million unrealized foreign-exchange gain related to the constrained profit-share liability. The nine-month tax provision was $288.5 million.
- Vir reported $140.3 million of year-to-date cost of revenue, primarily royalties on sotrovimab sales. Capital expenditures rose to $55.4 million from $8.8 million in the prior-year period, with property and equipment including $75.9 million of construction in progress.
- A material weakness remains in controls over estimating the GSK profit-share constraint. Management said disclosure controls were ineffective because review procedures did not ensure timely communication and sufficiently precise review of key information and judgments. The weakness had not caused a financial-statement misstatement; remediation is underway, with no assurance it will be effective.
Outlook, programs and principal risks
- Sotrovimab: The FDA had excluded use in all U.S. regions because of circulating Omicron subvariants. Vir and GSK did not plan to file a U.S. BLA at that time. WHO guidance in September recommended against use for non-severe COVID-19, while some non-U.S. markets retained access. Vir reported about 230,000 doses delivered in Q3, all outside the U.S. Future sales, authorizations and government procurement remain uncertain; excess supply and unused manufacturing capacity may create additional costs.
- BARDA and influenza: A September agreement provides potential funding of up to $1.0 billion for influenza and possibly other infectious-disease threats. The initial period includes approximately $55 million for VIR-2482 development. Vir initiated Phase 1b and Phase 2 influenza studies in September and October; initial data were expected in mid-2023.
- GSK collaboration: GSK selected RSV as its first pathogen under the 2021 expanded collaboration. Vir recognized $39.8 million of contract revenue upon the option exercise. Two other Selected Pathogen Rights remained unexercised, and GSK had not exercised its VIR-2482 option.
- Pipeline milestones: Vir expected initial Phase 2 data for HBV combination programs, HDV, and related studies in the second half of 2023; initial data from a Brii Bio-led HBV study were expected by year-end 2022. VIR-1111 highest-dose cohort data were expected in the first half of 2023, and a Phase 1 trial of VIR-1388 was planned for the second half of 2023. These are company expectations, not assured outcomes.
- Financial and operating risks: Near-term revenue depends heavily on sotrovimab and its changing regulatory and market position. The company expects higher R&D and administrative spending, may need additional capital for longer-term plans, and relies on collaborators and third-party manufacturers. Clinical, regulatory, supply-chain, competition, foreign-exchange and interest-rate risks could affect results. Vir disclosed no material legal proceedings.
Important facts for investors to verify
- How GSK’s reported sotrovimab sales, allowable costs and future excess-supply or unused-capacity charges affect Vir’s recognized and constrained profit share.
- Whether sotrovimab remains authorized and commercially usable in key markets, and whether government procurement or demand supports future revenue.
- Progress on remediation of the material weakness and whether the profit-share estimation process and disclosure controls become effective.
- Use of cash and investment balances, cash burn excluding collaboration-related collections, and the timing or need for additional financing.
- Clinical enrollment, safety and efficacy data, regulatory timelines and funding/options under the BARDA and GSK agreements.