What changed in this filing

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Item 1. Financial Statements

2020-08-11 compared with 2020-05-12 · 354 added, 216 removed, 585 unchanged (49% of the section changed)

31 unchanged sentences

Preferred stock, $ 0.0001 par value;

10,000,000 shares authorized as of March 31,

10,000,000 shares authorized as of June 30,

2020 and December 31, 2019;

no shares issued and outstanding as of March 31,

no shares issued and outstanding as of June 30,

2020 and December 31, 2019

Common stock, $ 0.0001 par value;

300,000,000 shares authorized as of March 31,

300,000,000 shares authorized as of June 30,

2020 and December 31, 2019;

117,727,086 and 107,648,925 shares issued and

outstanding as of March 31, 2020 and December 31, 2019, respectively

outstanding as of June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Accumulated deficit

6 unchanged sentences

Three Months Ended

Six Months Ended

Grant revenue

License revenue from a related party

Contract revenue

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Three Months Ended

Other comprehensive income:

Unrealized gains on investments

Six Months Ended

Other comprehensive income (loss):

Unrealized gain (loss) on investments

Amortization of actuarial loss

Other comprehensive income

Other comprehensive income (loss)

Comprehensive loss

8 unchanged sentences

Equity (Deficit)

Balance at March 31, 2020

Issuance of common stock in connection with the achievement of a milestone

Issuance of common stock in connection with a collaboration agreement

Issuance of common stock for cashless exercise of warrant

Vesting of restricted common stock

Exercise of stock options

Stock-based compensation

Other comprehensive loss

Balance at June 30, 2020

Convertible Preferred Stock

Comprehensive

Stockholders'

Income (Loss)

Equity (Deficit)

Balance at March 31, 2019

Vesting of restricted common stock

Exercise of stock options

Stock-based compensation

Other comprehensive income

Balance at June 30, 2019

The accompanying notes are an integral part of these condensed consolidated financial statements.

VIR BIOTECHNOLOGY, INC.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

Convertible Preferred Stock

Comprehensive

Stockholders'

Income (Loss)

Equity (Deficit)

Balance at December 31, 2019

Reclassification of derivative liability to

additional paid-in capital

Reclassification of derivative liability to additional paid-in capital

Issuance of common stock in connection with the achievement of a milestone

Issuance of common stock in connection with a collaboration agreement

Issuance of common stock for cashless exercise of warrant

Vesting of restricted common stock

2 unchanged sentences

Other comprehensive income

Balance at March 31, 2020

Balance at June 30, 2020

Convertible Preferred Stock

4 unchanged sentences

Balance at December 31, 2018

Issuance of Series B convertible preferred

stock, net of issuance cost of $ 165

Issuance of Series B convertible preferred stock, net of issuance cost of $ 165

Vesting of restricted common stock

2 unchanged sentences

Other comprehensive income

Balance at March 31, 2019

Balance at June 30, 2019

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

5 unchanged sentences

Change in estimated fair value of contingent consideration

Payment of contingent consideration in excess of acquisition date fair value

Change in estimated fair value of derivative liability

15 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock in connection with a collaboration agreement

Proceeds from issuance of convertible preferred stock, net of issuance costs

Payment of contingent consideration

Payment of principal on financing lease obligations

Payment of offering costs related to initial public offering

Proceeds from exercise of stock options

6 unchanged sentences

Reclassification of derivative liability to additional paid-in capital

Deferred offering costs in accounts payable and accrued liabilities

Advanced proceeds applied to convertible preferred stock issuance

11 unchanged sentences

Vir has assembled four technology platforms that are designed to stimulate and enhance the immune system by exploiting critical observations of natural immune processes.

Its current development pipeline consists of product candidates targeting hepatitis B virus (“HBV”), influenza A, severe acute respiratory syndrome coronavirus 2 (“SARS-CoV-2”), human immunodeficiency virus (“HIV”), and tuberculosis (“TB”).

Its current development pipeline consists of product candidates targeting severe acute respiratory syndrome coronavirus 2 (“SARS-CoV-2”), hepatitis B virus (“HBV”), influenza A, human immunodeficiency virus (“HIV”), and tuberculosis (“TB”).

Reverse Stock Split

9 unchanged sentences

The Company has incurred net losses since inception and expects such losses to continue over the next several years.

At March 31, 2020, the Company had an accumulated deficit of $ 445.8 million.

As of June 30, 2020, the Company had an accumulated deficit of $ 476.9 million.

Management expects to incur additional losses in the future to conduct research and development and recognizes the need to raise additional capital to fully implement its business plan.

The Company had, excluding restricted cash, $ 361.8 million of cash, cash equivalents, and investments at March 31, 2020.

Based on the Company’s business plans, management believes that its cash, cash equivalents, and short and long-term investments as of March 31, 2020 will be sufficient to meet its obligations for at least the next 12 months from the issuance date of these condensed consolidated financial statements.

The Company had, excluding restricted cash, $ 552.4 million of cash, cash equivalents, and short-term investments at June 30, 2020.

In July 2020, the Company completed a follow-on offering of its common stock and issued 8,214,285 shares of its common stock for net proceeds of $ 323.2 million, after deducting underwriting discounts, commissions and offering expenses.

Based on the Company’s business plans, management believes that its cash, cash equivalents, and short-term investments as of June 30, 2020 together with the net proceeds from its July 2020 follow-on offering will be sufficient to fund its operations for at least the next 12 months from the issuance date of these condensed consolidated financial statements.

Summary of Significant Accounting Policies

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The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s financial information.

The condensed consolidated results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim period.

The condensed consolidated results of operations for the six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim period.

Certain information and footnote disclosures typically included in the Company’s annual consolidated financial statements have been condensed or omitted.

7 unchanged sentences

Concentration of Credit Risk and Other Risks and Uncertainties

With the global spread of the ongoing COVID-19 pandemic in the first quarter of 2020, the Company has implemented a number of plans and policies designed to address and mitigate the impact of the COVID-19 pandemic on its business.

With the global spread of the current COVID-19 pandemic, the Company has implemented a number of plans and policies designed to address and mitigate the impact of the COVID-19 pandemic on its business.

The Company anticipates that the COVID-19 pandemic will have an impact on the clinical development timelines for some of its clinical programs.

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If the Company does not successfully obtain regulatory approval, commercialize or partner any of its product candidates, it will be unable to generate revenue from product sales or achieve profitability.

In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.

In addition, to the extent the current COVID-19 pandemic adversely affects the Company’s business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and short and long-term investments.

5 unchanged sentences

The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and investments, and issuers of the investments to the extent recorded on the condensed consolidated balance sheets.

As of March 31, 2020, the Company has no off-balance sheet concentrations of credit risk.

As of June 30, 2020, the Company has no off-balance sheet concentrations of credit risk.

Investments include available-for-sale securities and are carried at estimated fair value.

9 unchanged sentences

Additionally, the determination of whether an orderly transaction is for the same or similar investment requires significant management judgment including the nature of the rights and obligations of its investments, the extent to which differences in those rights and obligations would affect the fair values of those investments, and the impact of any differences based on the stage of operational development of the investee.

See Note 5—Grant, License and Collaboration Agreements for additional information on the Company’s investment in Brii Biosciences Limited .

See Note 6 —Collaboration and License Agreements for additional information on the Company’s investment in Brii Biosciences Limited .

Restricted Cash and Cash Equivalents

3 unchanged sentences

Revenue Recognition

The Company’s revenue primarily consists of research funding received from grants and contract revenue related to research services provided to customers.

The Company has not earned any product revenue since inception.

Additionally, while the Company has entered into various collaboration arrangements, the Company has not recognized any revenue from licenses, milestones or royalties under such agreements.

Grant Revenue

2 unchanged sentences

Contributions are recognized as grant revenue when all donor-imposed conditions have been met.

Contract Revenue

License and Contract Revenue

In accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when the Company’s customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods and services.

5 unchanged sentences

and (v) recognize revenue when or as the Company satisfies a performance obligation.

For collaborative arrangements that fall within the scope of ASC 808, Collaborative Arrangements (“ASC 808”), the Company applies the revenue recognition model under ASC 606 to part or all of the arrangement, as deemed appropriate.

For collaborative arrangements that fall within the scope of ASC 808, Collaborative Arrangements (“ASC 808”), the Company first determines which elements of the collaboration are deemed to be a performance obligation 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, the Company applies the revenue recognition model under ASC 606 or other guidance, as deemed appropriate.

The Company has entered into a number of license and collaboration agreements that fall within the scope of ASC 606.

5 unchanged sentences

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:

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Therefore, the initial cost of acquired IPR&D is expensed, and no goodwill is recorded.

Any contingent consideration that meets the definition of an embedded derivative under other applicable GAAP is accounted for at fair value on the acquisition date and are remeasured each subsequent reporting period until the related contingencies are resolved and are classified as contingent consideration on the condensed consolidated balance sheets.

Otherwise, such contingent consideration is recognized only when it becomes payable or is paid.

Any contingent consideration is recognized only when it becomes payable or is paid.

The changes in fair values of contingent consideration related to achievement of various milestones related to product candidates are recorded within research and development expense.

Otherwise, the changes in fair values are recorded within other income (expense), net.

Embedded Derivatives

The Company evaluates certain of its financial and business development transactions to determine if embedded components of these contracts meet the definition of a derivative under Topic ASC 815, Derivatives and Hedging.

The Company evaluates certain of its acquisitions, collaborative arrangements and other business development transactions to determine if embedded components of these contracts meet the definition of a derivative under Topic ASC 815, Derivatives and Hedging.

In general, embedded derivatives are required to be bifurcated from the host instrument if (i) the embedded feature is not clearly and closely related to the host contract and (ii) the embedded feature, if considered a freestanding instrument, meets the definition of a derivative.

The embedded derivatives are reported on the condensed consolidated balance sheets at their estimated fair values.

Any change in estimated fair values, as determined at each measurement period, are recorded in the condensed consolidated statements of operations.

Specifically, any contingent consideration related to an asset acquisition that meets the definition of an embedded derivative are classified as contingent consideration on the condensed consolidated balance sheets.

Any change in estimated fair values, as determined at each measurement period, are recorded in the condensed consolidated statements of operations based on the nature of the related contingencies.

The changes in fair values of an embedded derivative related to achievement of various milestones related to product candidates are recorded within research and development expense.

Otherwise, the changes in fair values are recorded within other income (expense), net.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (“ASC 842”).

ASC 842 requires lessees to recognize all leases, including operating leases, on the balance sheet as a right-of-use (“ROU”) asset and lease liability, unless the lease is a short-term lease, defined as having a term of twelve-months or less.

The Company early adopted the standard on January 1, 2020 using the optional modified retrospective transition method by recognizing a cumulative effect adjustment to the opening balance of accumulated deficit as of that date.

Results for the three months ended March 31, 2020 are presented under ASC 842.

Results for the three and six months ended June 30, 2020 are presented under ASC 842.

The prior period amounts were not adjusted and continue to be reported in accordance with previous lease guidance, ASC 840, Leases.

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All other amendments should be applied retrospectively to all periods presented upon their effective date.

The Company adopted ASU 2018-13 on January 1, 2020 and the adoption resulted in additional disclosures related the Company’s Level 3 financial instruments.

The Company adopted ASU 2018-13 on January 1, 2020 and the adoption resulted in additional disclosures related to the Company’s Level 3 financial instruments.

See Note 3 – Fair Value Measurements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction Between Topic 808 and Topic 606 (“ASU 2018-18”).

The amended guidance precludes presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction.

The new guidance is effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

The Company adopted ASU 2018-18 as of January 1, 2020 and the adoption of ASU 2018-18 had no impact on the consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

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ASU 2019-04 modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis.

As an emerging growth company, Topic 326 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Company plans to adopt ASU 2016-13 effective January 1, 2023, and has not yet evaluated the impact of adopting this standard on the condensed consolidated financial statements and disclosures.

As an emerging growth company, Topic 326 would have been effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

However, in light of the Company’s public float as of June 30, 2020, the Company expects that it will no longer be an emerging growth company on December 31, 2020.

Therefore, the Company will be required to adopt ASU 2016-13 in its consolidated financial statements for the year ended December 31, 2020.

The Company is currently assessing the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements and related disclosures.

The Company does not expect the adoption of ASU 2016-13 to have a material impact on its consolidated financial statements.

VIR BIOTECHNOLOGY, INC.

9 unchanged sentences

The following tables summarize the Company’s Level 1 and Level 2 financial assets measured at fair value on a recurring basis by level within the fair value hierarchy:

March 31, 2020

June 30, 2020

(in thousands)

3 unchanged sentences

Includes $ 12.2 million of restricted cash equivalents.

(2) Includes $ 6.1 million classified as long-term investments.

December 31, 2019

6 unchanged sentences

Includes $ 24.3 million classified as long-term investments.

As of March 31, 2020, all of the Company’s investments were in an unrealized gain position.

Total unrealized gains of $ 1.0 million were recorded in accumulated other comprehensive income (loss) at March 31, 2020.

As of March 31, 2020, all securities have contractual maturities of less than two years .

As of June 30, 2020, there were no investments that have been in a continuous unrealized loss position for longer than 12 months.

Total net unrealized gains of $ 0.4 million were recorded in accumulated other comprehensive income (loss) at June 30, 2020.

As of June 30, 2020, no securities have contractual maturities of longer than one year .

Level 3 liabilities consist of contingent consideration and derivative liability as of December 31, 2019.

As of March 31, 2020, Level 3 liabilities consist of contingent consideration.

As of June 30, 2020, Level 3 liabilities consist of contingent consideration.

Contingent Consideration

5 unchanged sentences

The estimated fair value of the contingent consideration related to the Humabs acquisition was determined by calculating the probability-weighted clinical, regulatory and commercial milestone payments based on the assessment of the likelihood and estimated timing that certain milestones would be achieved.

The Company calculated the estimated fair value of the clinical and regulatory milestones as of March 31, 2020 and December 31, 2019 using discount rates ranging from 17.0 % to 19.0 % and 7.7 % to 11.1 %, respectively.

As of March 31, 2020, the weighted average discount rate was 17.3 %, as calculated based on the relative fair value of the clinical and regulatory milestone payments.

The probability of achievement for the clinical and regulatory milestones ranged from 5.9 % to 85.0 % as of March 31, 2020, with a weighted average of 56.5 % calculated based on the relative fair value of the clinical and regulatory milestone payments.

In May 2020, the Company achieved one of the specified clinical milestones for the HBV product.

As such, the Company paid $ 10.0 million related to this milestone event in June 2020.

As of June 30, 2020, the Company calculated the estimated fair value of the remaining clinical and regulatory milestones using the following significant unobservable inputs:

Unobservable input

Value or Range

(Weighted-Average) 1

Discount rates

12% - 14% (13%)

Probability of achievement

14% - 49% (28%)

Unobservable inputs were weighted based on the relative fair value of the clinical and regulatory milestone payments.

As of December 31, 2019, the Company calculated the estimated fair value of the clinical and regulatory milestones using discount rates ranging from 7.7 % to 11.1 %.

For the commercial milestones, the Company used a Monte Carlo simulation upon the availability of a discrete revenue forecast and the increased likelihood that the clinical trials would commence.

The Monte Carlo simulation assumed a commercial product launch and associated discrete revenue forecast, an expected revenue volatility of 60 % and 55 %, and a discount rate of 11 % and 13 % as of March 31, 2020 and December 31, 2019, respectively.

As of June 30, 2020, the Monte Carlo simulation assumed a commercial product launch and associated discrete revenue forecast, as well as the following significant unobservable inputs:

Unobservable input

Value or Range

(Weighted-Average) 1

Discount rate

Probability of achievement

14% - 16% (15%)

Unobservable inputs were weighted based on the relative fair value of the commercial milestone payments .

As of December 31, 2019, the Company’s Monte Carlo simulation assumed a commercial product launch and associated discrete revenue forecast, an expected revenue volatility of 55 %, and a discount rate of 13 %.

The discount rate captures the credit risk associated with the payment of the contingent consideration when earned and due.

The probability of achievement for the commercial milestones ranged from 5.9 % to 6.7 % as of March 31, 2020, with a weighted average of 6.3 % calculated based on the relative fair value of the commercial milestone payments.

As of March 31, 2020 and December 31, 2019, the estimated fair value of the contingent consideration was $ 15.2 million and $ 14.9 million, respectively, with changes in the estimated fair value recorded in research and development expense in the condensed consolidated statements of operations.

As of June 30, 2020 and December 31, 2019, the estimated fair value of the contingent consideration related to the Humabs acquisition was $ 23.2 million and $ 14.9 million, respectively, with changes in the estimated fair value recorded in research and development expense in the condensed consolidated statements of operations.

The estimated fair value of the contingent consideration related to the TomegaVax acquisition was determined by using a Monte Carlo simulation model which included estimates of both the probability and timing to achieve the required per share price of the Company’s common stock, and incorporates assumptions as to expected volatility and discount rate.

Although the TomegaVax acquisition was accounted for as an asset acquisition, such contingent consideration met the definition of embedded derivative financial instruments.

The fair value of the contingent consideration was estimated using expected volatility of 80 % and 81 % as of March 31, 2020 and December 31, 2019, respectively, and discount rates ranging from 0.1 % to 0.3 % as of March 31, 2020 and 1.6 % to 1.7 % as of December 31, 2019.

As of March 31, 2020, the weighted average discount was 0.2 %, as calculated based on the relative fair value of the underlying milestones.

The discount rate captures the credit risk associated with the payment of the contingent consideration when earned and due.

As of March 31, 2020 and December 31, 2019, the estimated fair value of the contingent consideration was $ 9.5 million and $ 2.7 million, respectively, with changes in the estimated fair value recorded in other income (expense), net in the condensed consolidated statements of operations.

Although the TomegaVax acquisition was accounted for as an asset acquisition, such contingent consideration met the definition of an embedded derivative financial instruments.

As of June 30, 2020, the fair value of the contingent consideration was estimated using the following significant unobservable inputs:

Unobservable input

(Weighted-Average) 1

Discount rates

0.0% - 0.2% (0.1%)

Unobservable inputs were weighted based on the relative fair value of the underlying milestones.

As of December 31, 2019, the fair value of the contingent consideration was estimated using expected volatility of 81 %, and discount rates ranging from 1.6 % to 1.7 %.

As of June 30, 2020 and December 31, 2019, the estimated fair value of the contingent consideration related to the TomegaVax acquisition was $ 12.2 million and $ 2.7 million, respectively, with changes in the estimated fair value recorded in other income (expense), net in the condensed consolidated statements of operations.

The estimated fair value of the contingent consideration related to the Humabs and TomegaVax acquisitions involves significant estimates and assumptions which give rise to measurement uncertainty.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Derivative Liability

The derivative liability relates to the Milestone Shares (as defined in Note 6) in connection with the collaboration and license agreement (the “Alnylam Agreement”) with Alnylam Pharmaceuticals, Inc.

See Note 5 – Grant, License and Collaboration Agreements.

See Note 6—Collaboration and License Agreements.

The estimated fair value of the derivative liability was calculated based on the estimated probabilities of the likelihood and timing to achieve the development milestone, a discount for lack of marketability, and the fair value of the Milestone Shares using the Company’s closing stock price as of December 31, 2019 and March 10, 2020, the date the Company achieved the development milestone.

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Changes in fair value

Payment of contingent consideration related to Humabs

Reclassification of derivative liability to additional paid-in

capital upon achievement of development milestone

Balance at March 31, 2020

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Balance at June 30, 2020

Acquisition of TomegaVax

1 unchanged sentence

The primary asset purchased in the acquisition was an in-process cytomegalovirus (“CMV”) vector-based vaccine platform for use in HBV, HIV, and TB.

The acquisition was accounted for as an asset purchase and the Company recorded the cash purchase price of $ 5.2 million in research and development expenses in 2016.

The Company incurred transaction costs of $ 0.5 million.

In connection with the entry into the TomegaVax Merger Agreement, the Company also entered into a letter agreement with TomegaVax (the “TomegaVax Letter Agreement”), which provides for certain payments to TomegaVax’s former stockholders prior to September 2024, in each case so long as the Company is continuing to pursue the development of the TomegaVax technology.

In connection with the entry into the TomegaVax Merger Agreement, the Company also entered into a letter agreement with TomegaVax (the “TomegaVax Letter Agreement”), which provides for certain payments to TomegaVax’s former stockholders before September 2024, in each case so long as the Company is continuing to pursue the development of the TomegaVax technology.

Under the terms of the TomegaVax Letter Agreement, the Company will be required to pay to the former stockholders of TomegaVax milestone payments of up to an aggregate of $ 30.0 million if the per-share price of the Company’s publicly traded common stock, or implied price per share of the Company’s Series A-1 convertible preferred stock (or common stock upon conversion) upon a certain asset sale, merger or stock sale, is at least $ 45 (as adjusted in the case of any stock dividend, stock split or other similar recapitalization), with the amount of such payments determined by the share price and the stage of the Company’s clinical development at the time of the relevant event triggering the payment.

The share price of the Company’s publicly traded common stock will be determined using the average of the daily volume-weighted average trading price of the Company’s common stock for each trading day during a consecutive 90-day period.

The foregoing payments are payable (i) during any date after the completion of an initial public offering by the Company or any successor or affiliate controlling the TomegaVax technology, provided that no payment will be due before the first anniversary of the initial public offering, (ii) upon the sale of all assets related to the TomegaVax technology or (iii) upon a merger or stock sale of the Company or any successor or affiliate controlling the TomegaVax technology, in each case subject to certain conditions with respect to the timing of the payments.

The payments under the TomegaVax Letter Agreement can be made in cash or shares of the Company’s common stock, at the discretion of the Company’s board of directors.

None of the milestones have been achieved as of March 31, 2020, therefore no amounts were recognized relating to the contingent consideration during the three months ended March 31, 2020.

The Company determined that the future milestone payments contain net settlement provisions and therefore, they were required to be accounted for as embedded derivatives in accordance with the relevant accounting guidance.

As of March 31, 2020, the estimated fair value of the embedded derivative was $ 9.5 million.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The Company determined that the future milestone payments contain net settlement provisions and therefore, they were required to be accounted for as embedded derivatives under the relevant accounting guidance.

As of June 30, 2020, the estimated fair value of the embedded derivative was $ 12.2 million.

Acquisition of Humabs

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The transaction was accounted for as an acquisition of a business.

The estimated fair value of total consideration was $ 42.3 million at the acquisition date.

The consideration paid consisted of $ 30.0 million in cash and 1,666,656 shares of common stock, valued at $ 2.5 million as of the date of the transaction, to former Humabs shareholders.

The Company also agreed to pay additional amounts in cash upon the achievement of specified milestone events:

In addition to the cash payment and issuance of common stock to the former Humabs shareholders at the acquisition date, the Company also agreed to pay additional amounts in cash upon the achievement of specified milestone events:

(i) up to $ 135.0 million upon the achievement of clinical, regulatory and commercial milestones for an HBV product;

and (ii) up to $ 105.0 million upon the achievement of clinical, regulatory and commercial milestones for another product.

The estimated fair value of this contingent consideration was $ 6.3 million as of the date of acquisition.

Payments will vary based on milestones that are reached.

The final component of the consideration was acquired net working capital of $ 3.6 million.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The acquired developed technologies that have associated patents issued are classified as finite-lived intangible assets and are amortized on a straight-lined basis over their estimated remaining useful lives, generally between seven to 12 years .

The Company also acquired indefinite-lived intangible assets consisting of in-process research and development.

These assets will not be amortized until regulatory approval is obtained in a major market.

At that time, the Company will determine the useful life of the asset and begin amortization.

If the associated research and development effort is abandoned, the related in-process research and development assets will be written-off and an impairment charge recorded.

As of March 31, 2020, there have been no such impairments.

The estimated fair value of the intangible assets was determined using the replacement cost method.

The excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill.

None of the goodwill is expected to be deductible for income tax purposes.

In May 2020, the Company achieved one of the specified clinical milestones for the HBV product.

As such, the Company paid $ 10.0 million related to this milestone event in June 2020.

The estimated fair value of the remaining contingent consideration was $ 23.2 million as of June 30, 2020.

Acquisition of Agenovir

In January 2018, the Company entered into an agreement and plan of merger (the “Agenovir Merger Agreement”) with Agenovir, pursuant to which the Company purchased all equity interests of Agenovir.

In January 2018, the Company entered into an agreement and plan of merger (the “Agenovir Merger Agreement”) with Agenovir, under which the Company purchased all equity interests of Agenovir.

The primary assets purchased in the acquisition were in-process research and development programs in human papillomavirus (“HPV”) and HBV using CRISPR/Cas9.

1 unchanged sentence

As such, the acquisition was accounted for as an asset purchase.

As purchase consideration, the Company agreed to pay cash of $ 11.5 million and issued an aggregate of 555,537 shares of Series A-2 convertible preferred stock, valued at $ 1.8 million on the transaction date, to the former Agenovir stockholders.

The Company also assumed certain liabilities of $ 1.3 million.

The estimated fair value of the Company’s Series A-2 convertible preferred stock was $ 3.15 per share as of the date of the transaction and was determined by management with the assistance of a third-party valuation specialist.

The Company retained $ 2.0 million of the cash consideration as holdback to satisfy claims for indemnification, of which, $ 1.8 million was paid to Agenovir in April 2019.

In addition to the equity, the Company incurred transaction costs of $ 0.7 million.

The Company allocated the purchase price of $ 15.3 million between property and equipment of $ 0.8 million and in-process research and development of $ 14.5 million, based on the relative fair values of the assets acquired, which was expensed as research and development expenses in 2018.

At the acquisition date, the Company paid cash and issued shares of Series A-2 convertible preferred stock to the former Agenovir stockholders.

During a specified period following the closing of the Agenovir acquisition, the Company will be required to pay Agenovir’s former stockholders up to $ 45.0 million in the aggregate for the achievement of specified development and regulatory milestones for the first HBV product, and if the Company elects to progress the HPV program, the Company will owe up to $ 45.0 million in the aggregate for the achievement of development and regulatory milestones for the first HPV product.

1 unchanged sentence

The Company terminated the HPV program in February 2020 and no longer has any further obligations related to this program under the Agenovir Merger Agreement.

None of the milestones have been achieved as of March 31, 2020, therefore no amounts were recognized relating to the contingent consideration.

Grant, License and Collaboration Agreements

The Company is a party to various grant and customer contract agreements.

Descriptions of the material agreements are included below.

None of the milestones have been achieved as of June 30, 2020, therefore no amounts were recognized relating to the contingent consideration.

Grant Agreements

Bill & Melinda Gates Foundation Grants

Campylo/EPEC/EAEC Grant

As part of the Company’s acquisition of Humabs in August 2017, the Company acquired a grant agreement with the Bill & Melinda Gates Foundation pursuant to which it was awarded a grant totaling up to $ 4.7 million (the “2017 Grant”).

As part of the Company’s acquisition of Humabs in August 2017, the Company acquired a grant agreement with the Bill & Melinda Gates Foundation under which it was awarded a grant totaling up to $ 4.7 million (the “2017 Grant”).

The 2017 Grant supported the Company’s discovery, characterization and selection of human monoclonal antibodies with pre-clinical efficacy against three enteric pathogens responsible for life-threatening diarrhea in neonates.

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Payments received in advance that were related to future research activities were deferred and recognized as revenue when the donor-imposed conditions were met, which was as the research and development activities were performed.

The Company recognized $ 0.5 million for the three months ended March 31, 2019.

No revenue was recognized for the three months ended March 31, 2020.

The Company recognized $ 0.4 million and $ 0.9 million for the three and six months ended June 30, 2019, respectively.

No revenue was recognized for the three and six months ended June 30, 2020.

Human Immunodeficiency Virus (“HIV”) Grant

On January 26, 2018, the Company entered into a grant agreement with the Bill & Melinda Gates Foundation pursuant to which it was awarded a grant totaling up to $ 12.2 million for its HIV program (the “HIV Grant”).

In February 2020, the parties amended the HIV Grant pursuant to which the Company was awarded with a supplemental grant of $ 8.6 million.

On January 26, 2018, the Company entered into a grant agreement with the Bill & Melinda Gates Foundation under which it was awarded a grant totaling up to $ 12.2 million for its HIV program (the “HIV Grant”).

In February 2020, the parties amended the HIV Grant under which the Company was awarded a supplemental grant of $ 8.6 million.

Under the amendment, the HIV Grant will remain in effect until December 31, 2021, unless earlier terminated by the Bill & Melinda Gates Foundation for the Company’s breach, failure to progress the funded project, in the event of the Company’s change of control, change in the Company’s tax status, or significant changes in the Company’s leadership that the Bill & Melinda Gates Foundation reasonably believes may threaten the success of the project.

Payments received in advance that are related to future research activities are deferred and recognized as revenue when the donor-imposed conditions are met, which is as the research and development activities are performed.

The Company recognized grant revenue of $ 4.9 million and $ 2.1 million for the three months ended March 31, 2020 and 2019, respectively.

The Company recognized grant revenue of $ 0.5 million and $ 5.4 million for the three and six months ended June 30, 2020, respectively, and $ 0.8 million and $ 2.9 million for the three and six months ended June 30, 2019, respectively.

Tuberculosis (“TB”) Grant

On March 16, 2018, the Company entered into a grant agreement with the Bill & Melinda Gates Foundation pursuant to which it was awarded a grant totaling up to $ 14.9 million for its TB program (the “TB Grant”).

The TB Grant will remain in effect until June 30, 2020, unless earlier terminated by the Bill & Melinda Gates Foundation for the Company’s breach, failure to progress the funded project, in the event of the Company’s change of control, change in the Company’s tax status, or significant changes in the Company’s leadership that the Bill & Melinda Gates Foundation reasonably believes may threaten the success of the project.

As of March 31, 2020, the Company anticipates the TB Grant will be extended through December 2020.

The Company estimates that $ 4.1 million of the funds received in advance and previously recorded as deferred revenue will not be earned by December 2020.

Therefore, the Company has reclassified $ 4.1 million from deferred revenue to accrued and other liabilities as of March 31, 2020.

On March 16, 2018, the Company entered into a grant agreement with the Bill & Melinda Gates Foundation under which it was awarded a grant totaling up to $ 14.9 million for its TB program (the “TB Grant”).

The parties amended the agreement in May 2020 under which the grant term was extended to February 28, 2021, unless earlier terminated by the Bill & Melinda Gates Foundation for the Company’s breach, failure to progress the funded project, in the event of the Company’s change of control, change in the Company’s tax status, or significant changes in the Company’s leadership that the Bill & Melinda Gates Foundation reasonably believes may threaten the success of the project.

The Company currently estimated that $ 3.7 million of the funds received in advance and previously recorded as deferred revenue would not be earned by February 2021 and is therefore included within accrued and other liabilities as of June 30, 2020.

The Company recognized grant revenue of $ 0.1 million and $ 0.8 million for the three months ended March 31, 2020 and 2019, respectively.

The Company recognized grant revenue of nil and $ 0.1 million for the three and six months ended June 30, 2020, respectively, and $ 0.5 million and $ 1.3 million for the three and six months ended June 30, 2019, respectively.

National Institutes of Health

As part of the Company’s acquisition of TomegaVax in September 2016, the Company acquired grant agreements related to TomegaVax’s research effort in infectious diseases and cancer that entitled them to several awards under the Small Business Innovation Research Program from the National Institutes of Health (“NIH”).

Through March 31, 2020, the Company has acquired or been awarded grants from NIH totaling $ 5.1 million.

These grants are cost plus fixed fee agreements in which the Company is reimbursed for its direct and indirect costs.

Only costs that are allowable under certain government regulations and NIH’s supplemental policy and procedure manual may be claimed for reimbursement, subject to government audit.

The Company recognized grant revenue of $ 0.2 million and $ 0.3 million for the three months ended March 31, 2020 and 2019, respectively.

Through June 30, 2020, the Company has acquired or been awarded grants from NIH totaling $ 5.1 million.

These grants are cost plus fixed fee agreements under which the Company is reimbursed for its direct and indirect costs.

Only costs that are allowable under certain government regulations and NIH’s supplemental policy and procedure manual may be claimed for reimbursement, subject to a government audit.

The Company recognized grant revenue of $ 0.2 million and $ 0.5 million for the three and six months ended June 30, 2020, respectively, and $ 0.2 million and $ 0.5 million for the three and six months ended June 30, 2019, respectively.

Collaboration and License Agreements

On June 9, 2020, the Company, Glaxo Wellcome UK Limited and Beecham S.A.

(together, “GSK”) entered into a definitive collaboration agreement under the terms set forth in the preliminary collaboration agreement entered into by the Company and certain GSK entities in April 2020 (the “Preliminary Agreement”) (such definitive collaboration agreement, the “GSK Agreement”).

Concurrently with the execution of the Preliminary Agreement, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Glaxo Group Limited (“GGL”), an affiliate of GSK, under which GGL purchased 6,626,027 shares of the Company’s common stock on April 29, 2020, at a price per share of $ 37.73 , for an aggregate purchase price of approximately $ 250.0 million.

After receipt of antitrust clearance on April 22, 2020, the Preliminary Agreement became effective as of April 29, 2020, which was also the closing date for the associated Stock Purchase Agreement between the parties (“Effective Date”).

Under the terms of the GSK Agreement, the Company and GSK agreed to collaborate to research, develop and commercialize products for the

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

prevention, treatment and prophylaxis of diseases caused by SARS-CoV-2, the virus that causes COVID-19, and potentially other coronaviruses.

The collaboration is focused on the development and commercialization of three types of collaboration products under three programs:

(1) antibodies targeting SARS-CoV-2, and potentially other coronaviruses (the “Antibody Program”);

(2) vaccines targeting SARS-CoV-2, and potentially other coronaviruses (the “Vaccine Program”), and (3) products based on genome-wide CRISPR screening of host targets expressed in connection with exposure to SARS-CoV-2, and potentially other coronaviruses (the “Functional Genomics Program”).

For a period of four years following the Effective Date, the parties will conduct certain research and development activities under mutually agreed development plans and associated budgets for each of the three programs, and under the oversight of a joint steering committee (“JSC”).

The Company will be primarily responsible for the development and clinical manufacturing activities for the Antibody Program, and for conducting the initial development activities directed to a vaccine in the Vaccine Program.

GSK will be primarily responsible for the commercialization activities for the Antibody Program (except in connection with sales of antibody products licensed to WuXi Biologics (Hong Kong) Limited in greater China), the later-stage development, manufacturing and commercialization activities for the Vaccine Program and the development, manufacturing and commercialization activities for the Functional Genomics Program.

Subject to an opt-out mechanism, the parties will share all development costs, manufacturing costs and costs and expenses for the commercialization of the collaboration products, with the Company bearing 72.5 % of such costs for the antibody products, 27.5 % of such costs for the vaccine products, and equal sharing of such costs for the functional genomics products.

On a collaboration product-by-collaboration product basis, each party will have the one-time right, at specified points in development, to opt- out of its co-funding obligations, and the other party may, at its election, either pursue such program unilaterally, or also cease research and development activities and funding of such collaboration product.

If the opt-out provisions are not exercised by either party subject to the terms of the GSK Agreement, the parties would share all profits and losses arising from any collaboration product in the same ratios in which the parties bore development costs for such collaboration program.

For each collaboration product as to which a party exercises its opt-out right, the commercializing party will pay to the opt-out party royalties on net sales of the applicable collaboration product at rates based on factors such as the stage of development of such collaboration product at the time the opt-out party exercises such right, and whether the opt-out party is the lead party, or a portion of the sublicense revenue if the commercializing party chooses to sublicense or otherwise divest rights to such collaboration product.

On an antibody product-by-antibody product basis, the Company has a co-promotion right with respect to such antibody product in the United States, under which the Company will have the right to perform up to 20 % of details in connection with such antibody product.

The GSK Agreement will remain in effect with respect to each collaboration program for as long as there is a collaboration product being developed or commercialized by the lead party, or the non-opt-out party, in such program.

Either party has the right to terminate the GSK Agreement in the case of the insolvency of the other party, an uncured material breach of the other party with respect to a collaboration program or collaboration product, or as mutually agreed by the parties.

The GSK Agreement superseded and replaced the Preliminary Agreement between the parties.

The Company considered the ASC 606 criteria for combining contracts and determined that the GSK Agreement and Stock Purchase Agreement should be combined into a single contract because they were negotiated and entered into in contemplation of one another.

The fair market value of the common stock issued to GGL was $ 206.7 million, based on the closing stock price of $ 36.70 on the date of execution of the Preliminary Agreement and Stock Purchase Agreement and taking into account a discount for the lack of marketability due to the restrictions in place on the underlying shares, resulting in a $ 43.3 million premium received by the Company.

The Company accounted for the common stock issued to GGL based on its fair market value on the transaction date and determined that the premium paid by GSK should be attributed to transaction price of the GSK Agreement.

The Company concluded that the GSK Agreement contained four units of account:

(i) the license granted to GSK under the Antibody Program (the “Antibody License”);

(ii) the research and development activities (including clinical manufacturing) under the Antibody Program;

(iii) the research and development activities under the Vaccine Program;

and (iv) the research and development activities under the Functional Genomics Program.

The Company considered the guidance in ASC 606 to determine which of these elements of the GSK Agreement are performance obligations with a customer.

The Company determined that the Antibody License is within the scope of ASC 606 and accordingly, accounted for the Antibody License as a distinct performance obligation under ASC 606.

The Antibody License is a functional intellectual property and is distinct from the associated research and development activities to be performed under the program due to its significant standalone functionality.

All other elements of the GSK Agreement including the research and development activities, and participation in the JSC and subcommittees for each collaboration program were not determined to be distinct performance obligations with a customer.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The transaction price for the Antibody License at inception was determined to be $ 43.3 million, representing the premium on the sale of common stock to GSK.

The Company determined that GSK can benefit from the Antibody License at the time of grant and therefore, the related performance obligation is satisfied at a point in time.

As such, the Company recognized the $ 43.3 million as contract revenue during the three months ended June 30, 2020.

Additionally, the Company is entitled to consideration from GSK related to profit and loss sharing arrangements (including royalties) contingent upon future sales of collaboration products under the Antibody Program.

In accordance with ASC 606, the Company will recognize the revenue when the related sales occur as these amounts have been determined to relate predominantly to the Antibody License granted to GSK.

The Company will re-evaluate the transaction price in each reporting period.

The remaining units of account of the GSK Agreement were determined to be within the scope of ASC 808 as the Company and GSK are both active participants in the development, manufacturing and commercialization activities and are exposed to significant risks and rewards that are dependent on commercial success of the activities of the arrangement.

Furthermore, the Company and GSK participate in the the commercial profit and loss sharing arrangement for each program commensurate with each party’s cost-sharing responsibilities during research and development.

Because ASC 808 does not provide recognition and measurement guidance, the Company determined that the guidance in ASC 730, Research and Development, was appropriate to analogize to based on the nature of the cost-sharing provisions of the agreement.

The Company has concluded that payments to or reimbursements from GSK related to these services will be accounted for as an increase to or reduction of research and development expenses, respectively.

The Company also concluded that any payments from GSK related to the profit and loss sharing arrangement (including royalties) contingent upon the commercialization of the products under the Vaccine and Functional Genomics Programs will be analogized to ASC 606 and therefore, will be recognized when the related sales occur.

Costs associated with co-development activities performed under the agreement are included in research and development expenses in the condensed consolidated statements of operations, with any reimbursement of costs by GSK reflected as a reduction of such expenses.

During the three and six months ended June 30, 2020, the Company recognized $ 3.8 million as a reduction of research and development expense under the GSK Agreement.

As such, the Company has a receivable from GSK of $ 3.8 million included in prepaid expenses and other current assets as of June 30, 2020.

Brii Biosciences

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The number of options that the Company may exercise for a Brii Bio program is limited to the corresponding number of options that Brii Bio exercises for a Vir program.

As of March 31, 2020, no license option had been exercised.

As partial consideration for the Company’s entry into the Brii Agreement, upon closing of Brii Bio Parent’s Series A preferred stock financing, the Company received ordinary shares equal to 9.9 % of the outstanding shares in Brii Bio Parent.

As a result of Brii Bio’s right to exercise one of its options for the Company’s HBV siRNA program, under the terms of the Alnylam Agreement, as amended, the Company will transfer to Alnylam a specified percentage of such equity consideration allocable to such program.

The Company also received an option to purchase additional ordinary shares of Brii Bio Parent at a purchase price of $ 0.0001 per share in connection with additional Series A preferred stock issuances by Brii Bio Parent and an option to acquire shares of Brii Bio Parent’s Series B preferred stock (“Series B Closing Option”) upon the occurrence of a Series B financing at the same purchase price paid by the other Series B investors.

In December 2019, Brii Bio Parent completed its initial Series B preferred stock financing.

However, the Company did not exercise its additional Series A option or its Series B Closing Option and the options expired.

As a result of Brii Bio’s right to exercise one of its options for the Company’s HBV siRNA program, under the terms of the Alnylam Agreement, as amended, the Company transferred to Alnylam a specified percentage of such equity consideration allocable to such program as discussed below.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

With respect to programs for which Brii Bio exercises its options, Brii Bio will be required to pay the Company an option exercise fee for each such Vir program ranging from the mid-single-digit millions up to $ 20.0 million, determined based on the commercial potential of the licensed program.

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Royalty rates are subject to specified reductions and offsets.

The Brii Agreement will remain in force until expiration of all options or, if any option is exercised, expiration of all royalty payment obligations for all licensed products within such licensed program, unless terminated in its entirety or on a program-by-program basis by either party.

The Brii Agreement will remain in force until the expiration of all options or, if any option is exercised, expiration of all royalty payment obligations for all licensed products within such licensed program, unless terminated in its entirety or on a program-by-program basis by either party.

Each party may terminate for convenience all rights and obligations with respect to any program for which it has an option, with 30 days’ written notice (if the terminating party has not exercised an option for such program) or 180 days’ notice (following the exercise of an option for such program).

The Brii Agreement may also be terminated by either party for insolvency of the other party, and either party may terminate the Brii Agreement in its entirety or on a program-by-program basis for the other party’s uncured material breach on 60 days’ written notice (or 30 days’ notice following failure to make payment).

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The Company has determined that Brii Bio Parent and its wholly-owned subsidiary Brii Bio are variable interest entities due to their reliance on future financing and having insufficient equity at risk.

However, the Company does not have the power to direct activities which most significantly impact the economic success of these entities and is not considered the primary beneficiary of these entities.

However, the Company does not have the power to direct activities that most significantly impact the economic success of these entities and is not considered the primary beneficiary of these entities.

Therefore, the Company does not consolidate Brii Bio Parent or Brii Bio.

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The Company accounts for its investment in Brii Bio Parent’s ordinary shares at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment in Brii Bio Parent.

In February 2020, the Company, Alnylam and Brii Bio Parent executed a share transfer agreement pursuant to the terms of the Alnylam Agreement (see Alnylam section below).

In February 2020, the Company, Alnylam and Brii Bio Parent executed a share transfer agreement under the terms of the Alnylam Agreement (see Alnylam section below).

Under the share transfer agreement, the Company transferred a portion of its ordinary shares held in Brii Bio Parent to Alnylam in connection with the execution of the Brii Agreement.

As of March 31, 2020 and December 31, 2019, the carrying value of the investment in Brii Bio was $ 5.7 million and $ 6.6 million, respectively, which is included in other assets on the condensed consolidated balance sheets.

As of June 30, 2020 and December 31, 2019, the carrying value of the investment in Brii Bio was $ 5.7 million and $ 6.6 million, respectively, which is included in other assets on the condensed consolidated balance sheets.

The Company’s maximum exposure to loss under the Brii Agreement is represented by options to acquire licenses to develop and commercialize potential products and future milestone payments.

The ultimate expense that the Company incurs under the Brii Agreement cannot be quantified at this time as the amount will vary based on the timing and outcome of research activities.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Option Exercise by Brii Bio

In June 2020, Brii Bio exercised its option to obtain exclusive rights to develop and commercialize compounds and products arising from VIR-2218 in the China Territory.

As consideration for the Company’s grant to Brii Bio of an exclusive license related to VIR-2218 in the China Territory, the Company received a $ 20.0 million option exercise fee in connection with the option exercise.

Also, the Company is eligible to receive the following payments related to VIR-2218 in the China Territory:

a $ 30.0 million regulatory milestone payment, up to $ 175.0 million in sales-based milestone payments, and royalties on net sales ranging from high-teens to high-twenties.

The Company evaluated the transaction under ASC 606 and identified one performance obligation consisting of the license granted to Brii Bio.

Under the Brii Agreement, Brii Bio is responsible for performing all research and development activities and the Company does not have any other performance obligations within the context of ASC 606 under the arrangement after the option exercise.

The transaction price is determined to be $ 22.7 million which consists of the $ 20.0 million option exercise fee and $ 2.7 million of the deferred revenue allocated to the VIR-2218 option at inception of the Brii Agreement.

The Company determined that the license is considered a functional intellectual property that is a distinct performance obligation.

Specifically, the Company believes the license is capable of being distinct, as Brii Bio has the capabilities to develop the license either on its own or by contracting other third-parties.

Brii Bio can benefit from the license at the time of grant and therefore, the related performance obligation is satisfied at a point in time.

Additionally, all potential future milestones and other payments are constrained because the Company cannot conclude it is probable that a significant reversal in the amount recognized would not occur.

The Company will re-evaluate the transaction price in each reporting period.

During the three and six months ended June 30, 2020, the Company recognized the $ 22.7 million as license revenue from a related party.

The Company separately paid $ 10.0 million, half of the option exercise proceeds, to Alnylam in June 2020 in connection with the Alnylam Agreement that was recognized as research and development expense during the three months ended June 30, 2020.

October 2017 Agreement

In October 2017, the Company entered into the Alnylam Agreement for the development of siRNA products for the treatment of HBV and following the exercise of certain program options, the development and commercialization of siRNA therapeutic products directed to up to four other infectious disease targets selected by the Company.

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On a product-by-product basis for each product arising from the HBV and, following the Company’s option exercise, the infectious disease programs, Alnylam has an exclusive option, exercisable during a specified period prior to the initiation of a Phase 3 clinical trial for each such product, to negotiate and enter into a profit-sharing agreement for such product.

The Company and Alnylam are jointly responsible for funding the initial research and development activities for VIR-2218 through completion of proof of concept studies.

The Company and Alnylam are jointly responsible for funding the initial research and development activities for VIR-2218 through the completion of proof of concept studies.

Prior to the exercise of the Company’s option for each siRNA program directed to one of the Company’s selected infectious disease targets, Alnylam is responsible for conducting all development activities, at the Company’s expense, in accordance with an agreed upon development plan.

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If Alnylam exercises a profit-sharing option for a product, the Company will negotiate the terms of such profit-sharing agreement, which will include sharing equally with Alnylam all subsequent costs associated with the development of such product, as well as the profits and losses in connection with such product, subject to reimbursement by Alnylam of a portion of specified development costs in certain circumstances.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Pursuant to the Alnylam Agreement, the Company paid Alnylam an upfront fee of $ 10.0 million and issued to Alnylam 1,111,111 shares of the Company’s common stock.

Both the upfront fee and the estimated fair value of the common stock were recognized as research and development expenses in 2017.

Additionally, the receipt of consideration from Brii Bio as discussed above triggered a requirement under the Alnylam Agreement to transfer a portion of the consideration, consisting of equity in Brii Bio, to Alnylam.

Accordingly, the Company recognized a liability of $ 0.8 million which remained outstanding as of December 31, 2019.

In February 2020, the Company settled this liability by transferring to Alnylam a specified percentage of its equity consideration received from Brii Bio Parent.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Upon the achievement of a certain development milestone, as further discussed below, the Company was obligated to issue shares of the Company’s common stock equal to the lesser of (i) 1,111,111 shares or (ii) a certain number of shares based on the Company’s stock price at the time such milestone is achieved (the “Milestone Shares”).

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The royalties are payable on a product-by-product and country-by-country basis until the later of the expiration of all valid claims of specified patents covering such product in such country and 10 years after the first commercial sale of such product in such country.

The term of the Alnylam Agreement will continue, on a product-by-product and country-by-country basis, until expiration of all royalty payment obligations under the Alnylam Agreement.

The term of the Alnylam Agreement will continue, on a product-by-product and country-by-country basis, until the expiration of all royalty payment obligations under the Alnylam Agreement.

If the Company does not exercise its option for an infectious disease program directed to one of its selected targets, the Alnylam Agreement will expire upon the expiration of the applicable option period with respect to such program.

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Either party may terminate the agreement for cause for the other party’s uncured material breach on 60 days’ written notice (or 30 days’ notice for payment breach), or if the other party challenges the validity or enforceability of any patent licensed to it under the Alnylam Agreement on 30 days’ notice.

At inception of the Alnylam Agreement, the Milestone Shares did not meet the net settlement criteria to be accounted for as an embedded derivative.

At the inception of the Alnylam Agreement, the Milestone Shares did not meet the net settlement criteria to be accounted for as an embedded derivative.

Therefore, there was no liability recorded from the inception of the Alnylam Agreement through September 30, 2019.

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The $ 15.0 million milestone was paid in April 2020.

Second Amendment

In March 2020, the Company and Alnylam entered into a second amendment to the Alnylam Agreement (as amended, the “Amended Alnylam Agreement”) to expand the parties’ existing collaboration to include the development and commercialization of RNAi therapeutics targeting SARS-CoV-2, the virus that causes the disease COVID-19, and potentially other related coronaviruses, utilizing Alnylam’s recent advances in lung delivery of novel conjugates of siRNA – the molecules that mediate RNAi (the “COV Products”).

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Pursuant to the Amended Alnylam Agreement, the parties will each be responsible for pre-clinical development costs incurred by such party in performing its allocated responsibilities under an agreed-upon initial pre-clinical development plan for COV Products.

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Following commercialization, the Company will also be required to pay Alnylam specified sales milestones on the achievement of specified levels of annual net sales, and a tiered royalty at specified rates on annual net sales of the applicable COV Products.

Third Amendment

On April 1, 2020, the Company and Alnylam entered into a third amendment to the Alnylam Agreement to expand the parties’ existing collaboration to include the development and commercialization of RNAi therapeutics targeting up to three human host factor targets relating to susceptibility to coronaviruses, for use in connection with the treatment, palliation, diagnosis or prevention of COVID-19, and other diseases caused by coronaviruses.

The products arising from the activities directed to the host factor targets may utilize Alnylam’s recent advances in lung delivery of novel conjugates of siRNA – the molecules that mediate RNAi (the “Host Factor Products”).

Pursuant to this amendment, the parties will each be responsible for pre-clinical development costs incurred by such party in performing its allocated responsibilities under an agreed-upon initial pre-clinical development plan for Host Factor Products.

The parties will equally share costs incurred in connection with the manufacture of non-GMP drug product required for pre-clinical development prior to the filing of an investigational new drug application for the first Host Factor Product in the coronavirus program.

Following the completion of initial pre-clinical development activities, if the Company exercises its option to progress one or more candidates arising from the coronavirus program into further development, the Company will be responsible for conducting all development, manufacturing and commercialization activities for Host Factor Products, at its sole expense, subject to Alnylam’s right to opt-in, during a specified period, to share equally with the Company the profits and losses in connection with development and commercialization of Host Factor Products.

If the Company exercises its program option for the coronavirus program, and successfully develops one or more Host Factor Products arising from such program, then unless Alnylam exercises its profit-sharing option, the Company will be required to pay Alnylam up to $ 15.0 million in the aggregate for the achievement of specified development milestones for the Host Factor Products.

Following commercialization, the Company will also be required to make specified milestone payments to Alnylam on the achievement of specified levels of annual net sales, and a tiered royalty at specified rates on annual net sales of the applicable Host Factor Products.

Research and Development Expenses Recognized for the Period

In addition to the Milestone Shares and $ 15.0 million milestone payable to Alnylam in the first quarter of 2020, and the $ 10.0 million payment resulting from Brii Bio’s option exercise in the second quarter of 2020, the Company incurred expenses under the Alnylam Agreement of $ 2.5 million and $ 4.8 million during the three and six months ended June 30, 2020, respectively.

During the three and six months ended June 30, 2019, the Company incurred expenses under the Alnylam Agreement of $ 1.6 million and $ 3.1 million, respectively.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

In addition to the Milestone Shares and $ 15.0 million milestone payable to Alnylam in the first quarter of 2020, the Company incurred $ 2.3 million and $ 1.5 million of expenses under the Alnylam Agreement during the three months ended March 31, 2020 and 2019, respectively.

WuXi Biologics

In February 2020, the Company entered into a development and manufacturing collaboration agreement with WuXi Biologics (Hong Kong) Limited (“WuXi Biologics”) (the “WuXi Biologics Collaboration Agreement”), for the clinical development, manufacturing, and commercialization of the Company’s proprietary antibodies developed for SARS-CoV-2.

Under the WuXi Biologics Collaboration Agreement, WuXi Biologics will conduct cell-line development, process and formulation development, and initial manufacturing for clinical development.

WuXi Biologics will have the right to commercialize products incorporating such antibodies in greater China pursuant to an exclusive license granted for the selected antibodies that have been developed.

The Company will have the right to commercialize such products in all other markets worldwide.

WuXi Biologics will perform mutually agreed development and manufacturing activities, under individual statements of work.

In addition, the parties agreed that WuXi Biologics will pay the Company tiered royalties at percentages ranging from the high single-digits to mid-teens on annual net sales of all products sold by WuXi Biologics in greater China.

The royalties are payable for a specified, standard royalty term.

In addition, if WuXi Biologics sublicenses its commercialization rights to a third party, WuXi Biologics will pay the Company a percentage of the sublicense revenue received from such third party.

The WuXi Biologics Collaboration Agreement will continue until the expiration of WuXi’s payment obligations to the Company, unless terminated earlier.

If terminated earlier, the WuXi Biologics Collaboration Agreement may be terminated by (i) the written agreement of both parties, (ii) WuXi Biologics following the one year anniversary of the WuXi Biologics Collaboration Agreement effective date with respect to the entire agreement or on a product by product basis with 90 days’ prior written notice or (iii) by either party if the other party materially breaches the WuXi Biologics Collaboration Agreement and fails to cure such breach within sixty days.

Rockefeller University

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The Company’s obligation to pay royalties to Rockefeller will terminate, on a product-by-product and jurisdiction-by-jurisdiction basis, upon the latest of the expiration of the last valid claim of a licensed patent in such jurisdiction, the expiration of all regulatory exclusivity in such jurisdiction or 12 years following the first commercial sale of the applicable licensed product in such jurisdiction.

No license maintenance fees were recognized as research and development expense for the three months ended March 31, 2020 and 2019.

In May 2020, the Company achieved one of the specified development milestones related to the HBV program.

The Company recognized $ 1.3 million related to this milestone event and annual license maintenance fees as research and development expense during the three and six months ended June 30, 2020.

For the three and six months ended June 30, 2019, the Company recognized $ 1.0 million of license maintenance fees as research and development expense.

The Rockefeller Agreement will remain in force, absent earlier termination, until the expiration of all of the Company’s obligations to pay royalties to Rockefeller in all jurisdictions.

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Rockefeller may also terminate the Rockefeller Agreement if the Company ceases to carry on business with respect to the rights granted to the Company under the agreement.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

In September 2018, the Company entered into a license agreement (“2018 MedImmune Agreement”) with MedImmune, LLC (“MedImmune”), pursuant to which the Company obtained a worldwide, exclusive license to develop and commercialize half-life extended versions of two specified antibodies under development by MedImmune that target influenza A and influenza B, respectively, for all uses in humans and animals.

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In consideration for the grant of the licenses under the 2018 MedImmune Agreement, the Company made an upfront payment to MedImmune of $ 10.0 million.

The upfront fee was recognized as research and development expenses in the third quarter of 2018.

The Company will be obligated to make development, regulatory, and commercial milestone payments of up to $ 331.5 million in the aggregate relating to influenza A and influenza B products.

MedImmune will also be entitled to receive tiered royalties based on net sales of products containing half-life extended versions of antibodies directed to influenza A and/or influenza B at percentages ranging from the mid-single-digits to sub-teen double-digits.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The 2018 MedImmune Agreement will remain in force until the expiration on a country-by-country and product-by-product basis of all of the Company’s obligations to pay royalties to MedImmune.

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Additionally, MedImmune may terminate the 2018 MedImmune Agreement for cause on 30 days’ written notice if the Company challenges the validity or enforceability of the patents to which the Company has obtained a license under the 2018 MedImmune Agreement.

In August 2019, the Company achieved one of the specified development milestones relating to influenza A pursuant to the 2018 MedImmune Agreement.

In August 2019, the Company achieved one of the specified development milestones relating to influenza A under the 2018 MedImmune Agreement.

As such, the Company paid $ 5.0 million related to this milestone event in September 2019.

The milestone payment was expensed to research and development.

August 2019 License Agreement

In August 2019, the Company entered into a patent license agreement (the “2019 Xencor Agreement”) with Xencor, Inc., (“Xencor”).

Pursuant to the Xencor Agreement, the Company obtained a non-exclusive, sublicensable (only to its affiliates and subcontractors) license to incorporate Xencor’s half-life extension Fc region-related technologies into, and to evaluate, antibodies that target influenza A and HBV, and a worldwide, non-exclusive, sublicensable license to develop and commercialize products containing such antibodies incorporating such technologies for all uses, including the treatment, palliation, diagnosis and prevention of human or animal diseases, disorders or conditions.

Under the 2019 Xencor Agreement, the Company obtained a non-exclusive, sublicensable (only to its affiliates and subcontractors) license to incorporate Xencor’s half-life extension Fc region-related technologies into, and to evaluate, antibodies that target influenza A and HBV, and a worldwide, non-exclusive, sublicensable license to develop and commercialize products containing such antibodies incorporating such technologies for all uses, including the treatment, palliation, diagnosis and prevention of human or animal diseases, disorders or conditions.

The Company is obligated to use commercially reasonable efforts to develop and commercialize an antibody product that incorporates Xencor’s half-life extension Fc-related technologies, for each of the influenza A and HBV research programs.

These technologies are used in the Company’s VIR-2482 and VIR-3434 product candidates.

In consideration for the grant of the license, the Company paid Xencor an upfront fee.

The upfront fee was recognized as research and development expenses in the third quarter of 2019.

In consideration for the grant of the license, the Company paid Xencor an upfront fee, which was recognized as research and development expenses in the third quarter of 2019.

For each of the influenza A and HBV research programs, the Company will be required to pay Xencor development and regulatory milestone payments of up to $ 17.8 million in the aggregate, and commercial sales milestone payments of up to $ 60.0 million in the aggregate, for a total of up to $ 77.8 million in aggregate milestones for each program and $ 155.5 million in aggregate milestones for both programs.

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The royalties are payable, on a product-by-product and country-by-country basis, until the expiration of the last to expire valid claim in the licensed patents covering such product in such country.

The Xencor Agreement will remain in force, on a product-by-product and country-by-country basis, until expiration of all royalty payment obligations under the Xencor Agreement.

The Company may terminate the Xencor Agreement in its entirety, or on a target-by-target basis, for convenience upon 60 days’ written notice.

Either party may terminate the Xencor Agreement for the other party’s uncured material breach upon 60 days’ written notice (or 30 days in the case of non-payment) or in the event of bankruptcy of the other party immediately upon written notice.

Xencor may terminate the Xencor Agreement immediately upon written notice if the Company challenges, or upon 30 days’ written notice if any of the Company’s sublicensees challenge, the validity or enforceability of any patent licensed to the Company under the Xencor Agreement.

In August 2019, the Company achieved one of the specified development milestones pursuant to the Xencor Agreement.

In August 2019, the Company achieved one of the specified development milestones related to the influenza A program.

As such, the Company paid $ 0.8 million related to the upfront fee and this milestone event in September 2019.

The total payment was expensed to research and development.

In March 2020, the Company entered into another patent license agreement with Xencor pursuant to which the Company obtained a non-exclusive license to Xencor’s Fc-region related technologies to extend the half-life of novel antibodies that the Company is investigating as potential treatments for patients with COVID-19.

Under the terms of the agreement, the Company will be solely responsible for the activities and costs related to research, development, regulatory and commercial activities for the antibodies.

The Company will be obligated to pay royalties based on net sales of licensed products in the low single-digits.

In May 2020, the Company achieved one of the specified development milestones related to the HBV program.

As such, the Company paid $ 0.3 million related to this milestone event in June 2020.

The milestone payments are expensed to research and development.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

March 2020 License Agreement

In March 2020, the Company entered into a patent license agreement (the “2020 Xencor Agreement”) with Xencor under which the Company obtained a non-exclusive, sublicensable (only to the Company’s affiliates and subcontractors) license to incorporate Xencor’s half-life extension Fc region-related technologies into, and to evaluate, antibodies that target any component of a coronavirus, including SARS-CoV-2, SARS-CoV and MERS-CoV, and a worldwide, non-exclusive, sublicensable license to develop and commercialize products containing such antibodies incorporating such technologies for all uses, including the treatment, palliation, diagnosis and prevention of human or animal diseases, disorders or conditions.

These technologies are used in the Company’s VIR-7831 and VIR-7832 product candidates.

In consideration for the grant of the license, the Company will be obligated to pay royalties based on net sales of licensed products in the mid-single-digits.

The royalties are payable, on a product-by-product and country-by-country basis, until the later of the expiration of the last to expire valid claim in the licensed patents covering such product in such country or 12 years.

The 2020 Xencor Agreement and 2019 Xencor Agreement will remain in force, on a product-by-product and country-by-country basis, until the expiration of all royalty payment obligations under each of the respective agreements.

The Company may terminate each agreement in its entirety, or on a target-by-target basis, for convenience upon 60 days ’ written notice.

Either party may terminate each agreement for the other party’s uncured material breach upon 60 days ’ written notice (or 30 days in the case of non-payment) or in the event of bankruptcy of the other party immediately upon written notice.

Xencor may terminate each agreement immediately upon written notice if the Company challenges, or upon 30 days ’ written notice if any of the Company’s sublicensees challenge, the validity or enforceability of any patent licensed to the Company under each respective agreement.

Balance Sheet Components

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Total property and equipment, net

Depreciation and amortization expenses was $ 1.0 million and $ 0.7 million for the three months ended March 31, 2020 and 2019, respectively.

Depreciation and amortization expenses was $ 1.1 million and $ 2.1 million for the three and six months ended June 30, 2020, respectively, and $ 0.8 million and $ 1.5 million for the three and six months ended June 30, 2019, respectively.

Sale-Leaseback Transaction

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Therefore, the Company accounted for the transaction as a failed sale-leaseback whereby the Company continues to depreciate the assets and recorded a financing obligation for the consideration received from the buyer-lessor.

As of March 31, 2020, the current and long-term portions of the financing obligation were $ 0.2 million and $ 0.8 million, respectively.

As of June 30, 2020, the current and long-term portions of the financing obligation were $ 0.2 million and $ 0.8 million, respectively.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Accrued and Other Liabilities

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Payroll and related expenses

Restricted stock liability

Excess funds payable under grant agreements

Operating lease liabilities, current

Restricted stock liability

Financing lease obligation, current

Excess funds payable under grant agreements

Other professional and consulting expenses

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See further discussion in Note 7—Balance Sheet Components.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Throughout the term of the lease agreements, the Company is responsible for paying certain operating costs, in addition to rent, such as common area maintenance, taxes, utilities and insurance.

These additional charges are considered variable lease cost and are recognized in the period in which the costs are incurred .

The following table contains a summary of the lease costs recognized under Topic 842 and additional information related to operating leases for the three months ended March 31, 2020:

These additional charges are considered variable lease costs and are recognized in the period in which the costs are incurred.

The following table contains a summary of the lease costs recognized under ASC 842 and additional information related to operating leases for the three and six months ended June 30, 2020:

Three Months Ended

Six Months Ended

(in thousands)

March 31, 2020

June 30, 2020

Operating lease cost

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Weighted average incremental borrowing rate

Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2020 was $1.1 million and was included in net cash used in operating activities in the Company's condensed consolidated statement of cash flows.

The maturity of the Company’s operating lease liabilities as of March 31, 2020 was as follows (in thousands):

2020 (excluding the three months ended March 31, 2020)

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Cash paid for amounts included in the measurement of operating lease liabilities for the six months ended June 30, 2020 was $ 2.2 million and was included in net cash used in operating activities in the Company's condensed consolidated statement of cash flows.

The maturity of the Company’s operating lease liabilities as of June 30, 2020 was as follows (in thousands):

2020 (excluding the six months ended June 30, 2020)

Total lease payments

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Present value of operating lease liabilities

The following amounts were recorded in the condensed consolidated balance sheet as of March 31, 2020 (in thousands):

The following amounts were recorded in the condensed consolidated balance sheet as of June 30, 2020 (in thousands):

Operating Leases

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Total operating lease liabilities

Rent expense under ASC 840 was $ 1.0 million for the three months ended March 31, 2019.

Rent expense under ASC 840 was $ 1.0 million and $ 2.0 million for the three and six months ended June 30, 2019, respectively.

Manufacturing and Supply Letter Agreements

Letter Agreement with Samsung

On April 9, 2020, the Company and Samsung Biologics Co., Ltd.

(“Samsung”) entered into a binding letter agreement (the “Samsung Letter Agreement”), pursuant to which Samsung will perform development and manufacturing services for the Company’s SARS-CoV-2 antibody program.

Under the terms of the Samsung Letter Agreement, the Company has committed to purchase a firm and binding capacity reservation for a specified number of manufacturing slots in 2021 and 2022.

The Company is obligated to pay a total of approximately $ 362 million for such capacity reservation on a take-or-pay basis regardless of whether such manufacturing slots are utilized by the Company, subject to annual adjustment based on the Korean Consumer Price Index, which also includes certain fees relating to project management and technology transfer.

The amounts will be payable during 2021 and 2022 and invoiced on a per-batch basis, with shortfalls invoiced at the end of the year in which such shortfall occurs.

The parties will continue to negotiate additional terms in a definitive agreement (the “Samsung Definitive Agreement”) and will use best efforts to execute the Samsung Definitive Agreement before July 31, 2020.

The Samsung Letter Agreement will terminate upon the execution of the Samsung Definitive Agreement or mutual written agreement by the parties.

Letter of Intent with WuXi Biologics

On June 15, 2020, the Company and WuXi Biologics entered into a binding letter of intent (the “WuXi Biologics Letter Agreement”), pursuant to which WuXi Biologics will perform certain development and manufacturing services for the Company’s SARS-CoV-2 antibody program.

Under the terms of the WuXi Biologics Letter Agreement, the Company has committed to purchase a firm and binding capacity reservation for the manufacture of a specified number of batches of drug substance of the Company’s SARS-CoV-2 antibody in 2020 and 2021.

In addition, the Company has the right to order an additional specified number of batches of drug substance, provided it makes such election by a specified date in the fourth calendar quarter in 2020.

WuXi Biologics is obligated to reserve such manufacturing slots on a non-cancellable basis, and will manufacture the agreed number of batches of drug substance in accordance with an agreed manufacturing schedule.

The Company is obligated to pay a total of approximately $ 130.0 million for such capacity reservation, if all batches are manufactured, inclusive of estimated raw material costs, with between 70 % and 80 % of the

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The following are the aggregate non-cancelable future minimum lease payments under operating and financing leases as of December 31, 2019 (in thousands):

Year Ending December 31:

2024 and thereafter

batch production fees owed to WuXi Biologics on a take-or-pay basis regardless of whether such manufacturing slots are utilized by the Company.

The amounts will be payable during 2020 and 2021 and invoiced on a per-batch basis.

The SARS-CoV-2 antibody drug substance contemplated to be manufactured in accordance with the terms of the WuXi Biologics Letter Agreement will be utilized in connection with progressing the development and commercialization of the SARS-CoV-2 antibody product under the Company’s collaboration with GSK.

The parties will continue to negotiate additional terms in a definitive commercial manufacturing and supply agreement (the “WuXi Biologics Definitive Agreement”) and will use their respective commercially reasonable efforts to execute the WuXi Biologics Definitive Agreement before July 30, 2020.

The WuXi Biologics Letter Agreement will terminate upon the execution of the WuXi Biologics Definitive Agreement or mutual written agreement by the parties.

Indemnification

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Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party.

In some cases, the indemnification will continue after the termination of the agreement.

In some cases, the indemnification obligation will continue after the termination of the agreement.

The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable.

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The preferred stock was issued in a series.

In January 2019, pursuant to the Amended A&R Series A-1 and B Purchase Agreement, the Company sold an aggregate of 18,202,213 shares of Series B convertible preferred stock at $ 18.00 per share for gross proceeds of $ 327.5 million in two closings.

The Company was authorized to sell up to 4,020,009 additional shares of Series B convertible preferred stock in one or more additional closings.

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In September 2016, the Company issued a warrant to purchase an aggregate of 244,444 shares of the Company’s Series A-1 convertible preferred stock with an exercise price of $ 4.50 per share in connection with the termination of a sponsor research agreement.

The warrant was fully vested upon the issuance date and has an expiration date of September 11, 2026 .

The warrant was fully vested upon the issuance date and had an expiration date of September 11, 2026 .

The warrant was initially accounted for as a liability and was subject to remeasurement at each reporting period, with changes in estimated fair value recognized as a component of other income (expense), net.

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Therefore, the convertible preferred stock warrant liability was reclassified to additional paid-in capital.

In May 2020, the holder exercised its warrant in a cashless exercise for which the Company issued an aggregate of 211,774 shares of common stock.

VIR BIOTECHNOLOGY, INC.

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Outstanding at December 31, 2019

Outstanding at March 31, 2020

Vested and expected to vest at March 31, 2020

Vested and exercisable at March 31, 2020

As of March 31, 2020, the Company expects to recognize the remaining unamortized stock-based compensation expense of $ 37.6 million related to stock options, over an estimated weighted average period of 2.7 years.

Outstanding at June 30, 2020

Vested and expected to vest at

June 30, 2020

Vested and exercisable at June 30, 2020

As of June 30, 2020, the Company expects to recognize the remaining unamortized stock-based compensation expense of $ 78.2 million related to stock options, over an estimated weighted average period of 2.7 years.

Stock Options Granted to Employees

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Three Months Ended

Six Months Ended

Expected term of options (in years)

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95.7% - 100.6%

88.8% - 100.6%

Risk-free interest rate

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Expected Term— The expected term represents the period that the options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term.

Expected Volatility— The expected volatility was determined by examining the historical volatilities for industry peers and using an average of historical volatilities of Company’s industry peers as the Company does not have a sufficient historical trading history for its own stock.

Expected Volatility— The expected volatility was determined by examining the historical volatilities for industry peers and using an average of historical volatilities of the Company’s industry peers as the Company does not have a sufficient historical trading history for its own stock.

The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

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Unvested as of December 31, 2019

Unvested as of March 31, 2020

Unvested as of June 30, 2020

The shares of restricted stock have not been included in the shares issued and outstanding.

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The Company is recognizing compensation cost over the requisite service period with an offsetting credit to additional paid-in capital.

In August 2019, in accordance with the terms of the notes, the Company received $ 3.3 million as repayment of the outstanding promissory notes and accrued interest.

The Company has a liability of $ 1.0 million for the portion of the promissory note repayment which relates to restricted common stock subject to future vesting as of March 31, 2020.

In August 2019, under the terms of the notes, the Company received $ 3.3 million as repayment of the outstanding promissory notes and accrued interest.

The Company has a liability of $ 0.5 million for the portion of the promissory note repayment which relates to restricted common stock subject to future vesting as of June 30, 2020.

The Company will reduce the restricted stock liability as the common stock vests.

As of March 31, 2020, there was $ 0.8 million of total unrecognized compensation cost related to unvested restricted stock, all of which is expected to be recognized over a remaining weighted-average period of 0.6 years.

As of June 30, 2020, there was $ 0.5 million of total unrecognized compensation cost related to unvested restricted stock, all of which is expected to be recognized over a remaining weighted-average period of 0.4 years.

Stock-Based Compensation Expense

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Three Months Ended

Six Months Ended

(in thousands)

Research and development

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Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

As of March 31,

As of June 30,

Convertible preferred stock

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Warrants to purchase convertible preferred stock

Warrants to purchase common stock

VIR BIOTECHNOLOGY, INC.

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Subsequent Events

Amendment No.

3 to the Alnylam Agreement

The parties will equally share costs incurred in connection with the manufacture of non-GMP drug product required for pre-clinical development prior to filing of an investigational new drug application for the first Host Factor Product in the coronavirus program.

Following commercialization, the Company will also be required to make specified milestone payments to Alnylam on achievement of specified levels of annual net sales, and a tiered royalty at specified rates on annual net sales of the applicable Host Factor Products.

However, with respect to sales to governmental authorities or sales for the purposes of biodefense, management of public health or other public policy reasons, such royalty will be payable at a percentage in the low single-digits, plus a pass-through amount of any royalties Alnylam is required to pay to third parties under any third party in-license agreements related to the Host Factor Products.

GSK Agreements

Preliminary Collaboration Agreement

On April 5, 2020, the Company and GlaxoSmithKline Intellectual Property Development Limited and GlaxoSmithKline Biologicals SA (together, “GSK”) entered into a binding preliminary collaboration agreement (the “Preliminary Collaboration Agreement”), pursuant to which the parties agreed to collaborate to research, develop and commercialize products for the prevention, treatment and prophylaxis of diseases caused by SARS-CoV-2, and potentially other coronaviruses.

The collaboration will be directed to the development and commercialization of three types of collaboration products under three separate programs:

(1) antibodies targeting SARS-CoV-2, and potentially other coronaviruses (the “Antibody Program”);

For a period of four years following the closing of the Stock Purchase Agreement (as defined below), the parties will conduct certain research and development activities under mutually agreed development plans and associated budgets for each of the three programs.

GSK will be primarily responsible for the commercialization activities for the Antibody Program (except in connection with sales of antibody products licensed to WuXi Biologics (Hong Kong) Limited in People’s Republic of China, Hong Kong, Macau and Taiwan), the later-stage development, manufacturing and commercialization activities for the Vaccine Program and the development, manufacturing and commercialization activities for the Functional Genomics Program.

Subject to an opt-out mechanism, the parties will share all development costs in accordance with the budget for each of the collaboration programs, with the Company bearing 72.5 % of the development costs for the Antibody Program, 27.5 % of the development costs for the Vaccine Program, and the parties sharing equally the development costs for the Functional Genomics Program.

VIR BIOTECHNOLOGY, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

On a collaboration product-by-collaboration product basis, either party will have the right, at specified points in development, to opt out of its co-funding obligations, and the other party may, at its election, either pursue such program unilaterally, or also cease the conduct and funding of such collaboration product.

Unless a party has opted out prior to such time, the parties would share all profits and losses arising from any collaboration product in the same ratios in which the parties bore development costs for such collaboration program.

The parties will continue to negotiate a more detailed set of terms of a definitive collaboration agreement (the “Definitive Collaboration Agreement”), including more detailed financial terms, as well as operational provisions and consequences of any ongoing collaboration program as a result of a change of control of the Company.

If the parties cannot reach agreement and enter into the Definitive Collaboration Agreement within 45 days following the execution of the Preliminary Collaboration Agreement, the terms of the Definitive Collaboration Agreement will be determined through mediation and binding arbitration.

The Preliminary Collaboration Agreement will terminate upon the execution of the Definitive Collaboration Agreement, which will supersede the Preliminary Collaboration Agreement, and will remain in effect unless terminated by either party.

Stock Purchase Agreement

Concurrently with the execution of the Preliminary Collaboration Agreement, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Glaxo Group Limited (“GGL”), an affiliate of GSK, pursuant to which GGL purchased 6,626,027 shares of the Company’s common stock on April 29, 2020, at a price per share of $ 37.73 , for an aggregate purchase price of approximately $ 250.0 million.

The consummation of the transactions under each of the Preliminary Collaboration Agreement and the Stock Purchase Agreement were subject to the satisfaction of customary closing conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

The applicable waiting period was terminated early on April 22, 2020.

Letter Agreement with Samsung

On April 9, 2020, the Company and Samsung Biologics Co., Ltd.

(“Samsung”) entered into a binding letter agreement (the “Letter Agreement”), pursuant to which Samsung will perform development and manufacturing services for the Company’s SARS-CoV-2 antibody program.

Under the terms of the Letter Agreement, the Company has committed to purchase a firm and binding capacity reservation for a specified number of manufacturing slots in 2021 and 2022.

The amounts will be payable during 2021 and 2022 and invoiced on a per-batch basis, with shortfalls invoiced at the end of the year in which such shortfall occurs.

The parties will continue to negotiate additional terms in a definitive agreement (the “Definitive Agreement”) and will use best efforts to execute the Definitive Agreement before July 31, 2020.

The Letter Agreement will terminate upon the execution of the Definitive Agreement or mutual written agreement by the parties.

Follow-on Offering

On July 10, 2020, the Company issued and sold 8,214,285 shares of the Company’s common stock pursuant to a registration statement on Form S-1 (File No.

333-239689) and a registration statement on Form S-1 filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (File No.

333-239747) (collectively, the “Registration Statements”).

The Registration Statements became effective on July 7, 2020.

The price of the shares sold in the follow-on offering was $ 42.00 per share and the Company received total gross proceeds from the offering of approximately $ 345.0 million.

After deducting underwriting discounts and commissions of $ 20.7 million and offering expenses of $ 1.1 million, the net proceeds were $ 323.2 million.

WuXi Biologics and Samsung Letter Agreement Assignments and Master Services Agreements

On August 4, 2020, the Company, GlaxoSmithKline Trading Services Limited (“GSKTSL”) and WuXi Biologics entered into an Assignment and Novation Agreement effective as of July 29, 2020 pursuant to which the Company assigned and transferred to GSKTSL all of the Company’s right, title, and interest in, to and under the WuXi Biologics Letter Agreement, and GSKTSL became the Company’s successor in interest in and to all of the Company’s rights, duties, and obligations in, to and under the WuXi Biologics Letter Agreement.

On August 4, 2020, GSKTSL entered into a non-exclusive Master Services Agreement for Commercial Manufacture of Drug Substance with WuXi Biologics effective as of July 29, 2020 (the “WuXi Biologics MSA”), thereby superseding the WuXi Biologics Letter Agreement, and pursuant to which, among other things, WuXi Biologics will perform development and manufacturing services for clinical and commercial supply of antibody products under the Company’s SARS-CoV-2 antibody program.

On August 4, 2020, the Company, GSKTSL and Samsung entered into an Assignment and Novation Agreement effective as of July 31, 2020 pursuant to which the Company assigned and transferred to GSKTSL all of the Company’s right, title, and interest in, to and under the Samsung Letter Agreement, and GSKTSL became the Company’s successor in interest in and to all of the Company’s rights, duties, and obligations in, to and under the Samsung Letter Agreement.

On August 4, 2020, GSKTSL entered into a Master Services Agreement with Samsung effective as of July 31, 2020 (the “Samsung MSA”), thereby superseding the Samsung Letter Agreement, and pursuant to which, among other things, Samsung will perform development and manufacturing services for clinical and commercial supply of antibody products under the Company’s SARS-CoV-2 antibody program.

GSKTSL entered into the WuXi Biologics MSA and Samsung MSA in connection with the performance of the obligations of the Company and GSK, pursuant to the GSK Agreement.

In accordance with the terms of the GSK Agreement, the Company will continue to be responsible for 72.5 % of the costs under each of the WuXi Biologics MSA and Samsung MSA, and GSK will bear 27.5 % of such costs under each of the Samsung MSA and the WuXi Biologics MSA, subject to certain conditions and exceptions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements