Vir Biotechnology, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Unaudited consolidated financial statements; amounts below are in U.S. dollars unless stated otherwise.
Business context
Vir is a clinical-stage immunology company developing treatments and preventive therapies for serious infectious diseases. Its pipeline targets HBV, influenza A, HIV and TB. VIR-2218 was in a Phase 1/2 trial, with initial data showing substantial reduction in hepatitis B surface antigen and generally good tolerability; a Phase 1/2 trial for influenza A candidate VIR-2482 had also begun. Vir had no approved products and no product-sales revenue.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $1.4m | $2.9m | $7.1m | $7.5m |
| Research and development | $39.9m | $29.8m | $95.5m | $78.3m |
| General and administrative | $9.2m | $7.4m | $25.8m | $21.2m |
| Operating loss | $47.7m | $34.3m | $114.2m | $91.9m |
| Net loss | $48.3m | $33.5m | $110.9m | $89.5m |
| Basic and diluted net loss per share | $4.60 | $4.16 | $11.53 | $12.20 |
Revenue was primarily grant and contract revenue. The company reported no gross margin measure; product-sales profitability is not yet applicable. Q3 net loss included $2.7m of other expense, mainly reflecting remeasurement of the preferred-stock warrant liability.
- At September 30, cash and cash equivalents were $93.7m, short-term investments were $226.5m, and restricted cash was $11.7m. Cash, cash equivalents and short-term investments totaled $320.2m.
- Current assets were $337.7m and current liabilities $44.3m. Total liabilities were $66.8m. Vir reported no debt outstanding; it had a $1.2m financing obligation from a failed sale-leaseback of equipment.
- Operating cash use was $90.7m for the nine months, versus $64.6m in 2018. Investing cash use was $182.4m, largely reflecting net purchases of short-term investments and $7.4m of capital expenditures. Financing provided $319.1m, mainly from Series B preferred-stock proceeds.
- Accumulated deficit was $304.7m. Preferred stock had a $675.6m liquidation preference at quarter-end.
Material changes versus the prior comparable period
- Q3 revenue declined $1.5m year over year, primarily because the Campylo/EPEC/EAEC Gates Foundation grant expired in May 2019 and research activity timing affected other grants. Nine-month revenue declined $0.4m, mainly due to lower contract revenue.
- R&D expense rose $10.0m in Q3 and $17.3m for the nine-month period, reflecting increased headcount, clinical activity and other research costs. Nine-month licensing and collaboration expense fell substantially, principally because the prior-year period included Agenovir acquisition-related expense and a MedImmune payment.
- G&A expense rose with additional personnel and professional fees. Interest income increased as cash and investment balances grew.
- Cash, cash equivalents and short-term investments increased from $98.4m at December 31, 2018 to $320.2m at September 30, 2019, primarily following the January 2019 Series B financing.
Outlook, risks and unusual items
- Management expects significant operating losses and higher R&D and G&A spending as development advances, the company hires, and public-company costs increase. No formal revenue or earnings guidance was provided.
- Runway statements differ within the filing: the financial-statement note says September 30 resources plus IPO proceeds should cover obligations for at least 12 months from issuance of the statements; MD&A says the same resources should fund the operating plan for at least 18 months. Management also says substantial additional capital will be needed beyond the current plan.
- On October 10, 2019, after quarter-end, Vir completed its IPO, selling 7,142,858 shares at $20.00 each and receiving $127.2m net proceeds. Preferred shares converted into common stock at the IPO. The September 30 balance sheet does not reflect these subsequent events. As of November 15, 109,678,822 common shares were outstanding.
- Vir faces clinical, regulatory, manufacturing, financing, competition, intellectual-property and collaboration risks. Clinical outcomes are uncertain, and the company relies on external manufacturers and research partners. It expects additional capital may be needed; funding may dilute shareholders or require rights to be licensed or relinquished.
- Potential future payments under collaboration and acquisition agreements are substantial and contingent on milestones. The filing cites up to $1.3bn in Alnylam milestones, up to $343.3m under the MedImmune agreement, up to $155.5m under Xencor, and up to $240m and $270m related to Humabs and Agenovir acquisitions, respectively. These are maximum potential amounts, not current recognized liabilities.
- Vir paid $5.0m for an influenza A development milestone under the MedImmune agreement and $0.8m related to the Xencor upfront fee and milestone in Q3. Vir also notified Visterra in July of its intention to terminate that agreement, with termination expected in November 2019.
- The company reported no material legal proceedings. It disclosed a $21.8m total of future minimum operating and financing lease payments as of September 30.
Most important facts for investors to verify
- Reconcile the 12-month runway statement in the notes with the 18-month estimate in MD&A, including the assumptions and subsequent IPO proceeds used.
- Review subsequent clinical data and trial progress for VIR-2218 and VIR-2482; the cited VIR-2218 findings were initial data, not definitive efficacy evidence.
- Track cash burn, clinical and manufacturing spending, and the timing and terms of any additional financing.
- Assess the potential cost, timing and conditions of collaboration and acquisition milestones, options and royalties, including Alnylam profit-sharing provisions.
- Confirm post-IPO capitalization, including preferred-stock conversion, warrants, equity-plan dilution and shares eligible for resale.