Vir Biotechnology, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. Vir is a commercial-stage immunology company developing therapies for infectious diseases. This unaudited filing covers the three and six months ended June 30, 2022; amounts below are in U.S. dollars. Sotrovimab (Xevudy), commercialized with GSK, was the company’s only currently available commercial product. The company’s pipeline also includes candidates for COVID-19, HBV, HDV, influenza A and HIV.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $(40.6) million | $177.1 million | $1,191.8 million | $179.1 million |
| Operating expenses | $184.6 million | $116.1 million | $403.2 million | $276.7 million |
| Operating income (loss) | $(225.2) million | $61.0 million | $788.6 million | $(97.6) million |
| Net income (loss) | $(76.5) million | $61.8 million | $442.1 million | $(107.1) million |
| Diluted earnings (loss) per share | $(0.58) | $0.46 | $3.28 | $(0.83) |
| Operating cash flow | Not separately provided for the quarter | $1,510.2 million | $50.5 million |
Revenue and unusual accounting item. Q2 collaboration revenue was negative $54.9 million: $342.5 million of sotrovimab profit-sharing revenue was more than offset by a $397.4 million constraint for anticipated future manufacturing and supply-capacity adjustments. For the six-month period, collaboration revenue was $1,174.7 million. Management will reassess the estimate each reporting period; actual costs and results could differ materially.
Other results. Q2 cost of revenue was $27.9 million, primarily royalties on sotrovimab sales. Research and development expense was $115.1 million and selling, general and administrative expense was $41.6 million. Six-month results included a $106.4 million unrealized loss on the Brii Bio Parent equity investment and a $246.1 million income tax provision. Q2 included a $157.2 million income tax benefit. Gross margin is not meaningfully comparable for Q2 given negative total revenue.
Balance sheet and liquidity at June 30, 2022. Cash and cash equivalents were $1,505.2 million; short- and long-term investments were $751.7 million. Management reported $2.3 billion of cash, cash equivalents and investments excluding restricted cash, and believed it sufficient to fund operations for at least 12 months from issuance of the statements. Current assets were $2,288.3 million and current liabilities $477.9 million. Total liabilities were $667.0 million; the company reported no debt outstanding. Operating lease liabilities totaled $134.3 million. Stockholders’ equity was $1,952.0 million.
Cash flows. Six-month operating cash flow was $1,510.2 million, investing cash flow was $(377.7) million and financing cash flow was $30.8 million; cash, cash equivalents and restricted cash increased by $1,163.3 million. Operating cash flow included substantial noncash adjustments and working-capital movements, including the profit-sharing constraint and collection of collaboration receivables; it should not be treated as equivalent to recurring earnings.
Material changes versus prior comparable periods
- Q2 revenue shifted from $177.1 million to negative $40.6 million, principally reflecting the $397.4 million sotrovimab profit-share constraint. Six-month revenue rose to $1,191.8 million from $179.1 million, mainly due to sotrovimab profit-sharing revenue.
- Q2 net results shifted from $61.8 million income to a $76.5 million loss. Six-month net income improved to $442.1 million from a $107.1 million loss, despite the investment fair-value loss and higher tax provision.
- Six-month R&D expense decreased by $15.7 million year over year, while Q2 R&D expense increased by $29.0 million. Q2 SG&A increased by $12.8 million year over year.
- Cash and cash equivalents rose to $1,505.2 million from $347.8 million at December 31, 2021; short-term investments increased and long-term investments decreased. Property and equipment, net, increased to $85.1 million from $42.8 million, with higher construction in progress.
Outlook, developments and risks
- Sotrovimab: Approximately 265,000 doses were delivered in Q2, all outside the U.S., exceeding the company’s approximate 100,000-dose expectation. The FDA had excluded use in all U.S. regions due to Omicron subvariants; the company and GSK did not plan to file a U.S. BLA at that time. Use remained authorized or approved in more than 40 countries, with limitations in some markets. Future demand, regulatory access and efficacy against emerging variants are uncertain.
- Programs and planned milestones: Vir reported encouraging HBV data for VIR-2218 and VIR-3434 and began dosing Part B of the MARCH combination trial in June; initial data were expected in the second half of 2023. It expected to initiate an HDV Phase 2 trial in the second half of 2022, with initial data in 2023, and influenza A VIR-2482 trials in the second half of 2022, with initial data expected mid-2023. The filing also described expected additional sotrovimab and HIV candidate data; these are forward-looking plans, not assured outcomes.
- Collaborations: Vir terminated its WuXi Biologics collaboration agreement in May, with relevant regional rights reverting to Vir; it recorded a $7.0 million R&D expense and may owe royalties on regional sotrovimab sales. A GSK amendment granted GSK rights for mainland China, Hong Kong, Macau and Taiwan; GSK paid Vir a $7.0 million upfront fee and agreed to tiered royalties. In July, after quarter-end, Brii Bio exercised its VIR-3434 China-territory option, generating a $20.0 million fee, with potential future milestones and royalties.
- Operating outlook and risks: Management expected R&D and SG&A spending to rise as programs advance and stated that losses may continue and fluctuate. Future funding needs depend on clinical progress, commercial revenue, manufacturing commitments and other factors. Additional financing may dilute shareholders or require the company to relinquish rights.
- Controls: Vir identified a material weakness in management review controls for estimating the GSK profit-share constraint. Disclosure controls were therefore not effective at quarter-end. The company said the weakness did not cause a misstatement in the reported financial statements and described remediation steps; completion and effectiveness were not assured.
- Other matters: No material legal proceedings were reported. The company disclosed no off-balance-sheet arrangements and no debt outstanding. It reported no allowance for credit losses on available-for-sale debt securities attributable to credit risk during the six-month periods presented.
Most important facts for investors to verify
- How GSK’s future manufacturing, unused-capacity and other allowable expenses affect the $397.4 million profit-share constraint, accrued liabilities and subsequent collaboration revenue.
- Current sotrovimab authorization, variant susceptibility, realized sales and government procurement demand across markets.
- Cash and investment balances, operating cash use excluding collaboration-related and other working-capital movements, and the timing and scale of manufacturing commitments.
- Progress and data from the HBV, HDV, influenza and HIV programs against the stated trial timelines.
- Whether the company remediates the material weakness and establishes effective controls over profit-share estimates and financial reporting.
- Potential contingent payments, royalties and milestone obligations under collaboration, license, acquisition and lease agreements.