What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-11 compared with 2020-05-12 · 131 added, 68 removed, 193 unchanged (51% of the section changed)

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We are a clinical-stage immunology company focused on combining immunologic insights with cutting-edge technologies to treat and prevent serious infectious diseases.

Infectious diseases are among the leading causes of death worldwide and cause hundreds of billions of dollars of economic burden each year.

Infectious diseases are among the leading causes of death worldwide and can cause trillions of dollars of direct and indirect economic burden each year – as evidenced by the current coronavirus disease 2019, or COVID-19, pandemic.

We believe that now is the time to apply the recent and remarkable advances in immunology to combat infectious diseases.

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We have assembled four technology platforms, focused on antibodies, T cells, innate immunity and small interfering ribonucleic acid, or siRNA, through internal development, collaborations and acquisitions.

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

Our lead SARS-CoV-2 monoclonal antibody, or mAb, development candidates, VIR-7831 and VIR-7832, have demonstrated high affinity for the SARS-CoV-2 spike protein and are highly potent in neutralizing SARS-CoV-2 in live-virus cellular assays.

We plan to proceed directly into a Phase 2 clinical trial this summer pending regulatory review.

In February 2020, we entered into a development and clinical and commercial manufacturing collaboration with WuXi Biologics;

in March and April 2020, we expanded our collaboration with Alnylam Pharmaceuticals, Inc., or Alnylam, to include the development and commercialization of up to four additional RNA interference therapeutics including one targeting SARS-CoV-2 and three targets focused on host factors for SARS-CoV-2, including ACE2 and TMPRSS2, both of which are considered critical for viral entry.

In May 2020, we and Alnylam announced the selection of a development candidate VIR-2703, an investigational RNAi therapeutic targeting the SARS-CoV-2 genome;

in April 2020, we entered into a binding preliminary collaboration agreement with GlaxoSmithKline Intellectual Property Development Limited and GlaxoSmithKline Biologicals SA (together, “GSK”), pursuant to which we agreed to collaborate to research, develop and commercialize products for the prevention, treatment and prophylaxis of diseases caused by SARS-CoV-2;

and we entered into a binding letter agreement with Samsung Biologics Co., Ltd., or Samsung, pursuant to which Samsung will perform development and manufacturing services for our SARS-CoV-2 antibody program.

In addition, VIR-2218, an HBV-targeting siRNA, has completed enrollment in an ongoing Phase 1/2 clinical trial.

Data to date have demonstrated substantial reduction of hepatitis B virus surface antigen, or HBsAg, and VIR-2218 has been generally well tolerated.

Additionally, we have initiated a Phase 1/2 clinical trial for VIR-2482, a mAb designed for the prevention of influenza A.

Our current development pipeline consists of product candidates targeting severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, the virus that causes COVID-19, hepatitis B virus, or HBV, influenza A, human immunodeficiency virus, or HIV, and tuberculosis, or TB.

For SARS-CoV-2, VIR-7831, a SARS-CoV-2-neutralizing monoclonal antibody, or mAb, is planned to start a Phase 2/3 clinical trial program in August 2020 and we anticipate initial clinical data to be available before the end of the year.

VIR-7832, a vaccinal SARS-CoV-2-neutralizing mAb, is planned to initiate a Phase 2 clinical trial later this year.

VIR-2703, a SARS-CoV-2-targeting siRNA, is in preclinical studies, which are expected to be completed by the end of 2020.

For HBV, VIR-2218, an HBV-targeting siRNA, is currently in an ongoing Phase 2 clinical trial.

Initial Phase 2 data have demonstrated substantial, durable, and dose dependent reduction of hepatitis B virus surface antigen, or HBsAg, and VIR-2218 has been generally well-tolerated.

We recently initiated a Phase 2 clinical trial to combine VIR-2218 with pegylated interferon-alpha, an approved immune modulatory agent.

In addition, we recently initiated a Phase 1 clinical trial for VIR-3434, an HBV-neutralizing mAb.

For influenza A, VIR-2482, a mAb designed for the prevention of influenza A, is currently in a Phase 1/2 clinical trial and has been generally well-tolerated.

For HIV, VIR-1111, an HIV T cell vaccine based on HCMV, is planned to initiate a Phase 1 trial in the second half of this year.

We have built an industry-leading team that has deep experience in immunology, infectious diseases and product development.

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In October 2019, we completed our IPO pursuant to which we received net proceeds of $126.4 million, after deducting underwriting discounts, commissions and offering expenses.

As of March 31, 2020, excluding restricted cash, we had $361.8 million in cash, cash equivalents and investments.

Based upon our current operating plan, we believe that our existing cash, cash equivalents and investments as of March 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements through at least the next 12 months from the issuance date of the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

In April 2020, we issued 6,626,027 shares of our common stock to Glaxo Group Limited, or GGL, (an affiliate of GSK) at a price per share of $37.73, for an aggregate purchase price of approximately $250.0 million.

For additional information on the stock issuance to GGL, see Note 13—Subsequent Events to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

As of June 30, 2020, excluding restricted cash, we had $552.4 million in cash, cash equivalents and short-term investments.

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

Based upon our current operating plan, we believe that our existing cash, cash equivalents and short-term investments as of June 30, 2020 together with the net proceeds from our July 2020 follow-on offering will enable us to fund our operations through at least the next 12 months from the issuance date of the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

For additional information on the follow-on offering, see Note 14—Subsequent Events to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We have incurred significant operating losses since our inception and expect to continue to incur significant operating losses for the foreseeable future.

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Our net losses were $ 108 .

2 million and $28.7 million for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 20 20 , we had an accumulated deficit of $ 4 4 5.

Our primary use of our capital resources is to fund our operating expenses, which consist primarily of expenditures related to identifying, acquiring, developing and in-licensing our technology platforms and product candidates, and conducting preclinical studies and early clinical trials, and to a lesser extent, general and administrative expenditures.

4 million and $ 62.6 million for the six months ended June 30 , 2020 and 2019, respectively.

As of June 30 , 20 20 , we had an accumulated deficit of $ 476 .

Our primary use of our capital resources is to fund our operating expenses, which consist primarily of expenditures related to identifying, acquiring, developing , manufacturing and in-licensing our technology platforms and product candidates, and conducting preclinical studies and early clinical trials, and to a lesser extent, general and administrative expenditures.

Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

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We have established relationships with multiple CDMOs and have produced material to support preclinical studies and Phase 1 and Phase 2 clinical trials.

Material for Phase 3 clinical trials and commercial supply will require large-volume, low-cost-of-goods production, and we are in discussions with additional large-scale CDMOs to plan for future scale-up and capacity.

Material for Phase 3 clinical trials and commercial supply will require large-volume, low-cost-of-goods production.

For example, we and our partner have recently executed a number of collaboration agreements with additional large-scale CDMOs to plan for future scale-up and capacity, particularly to support development and potential commercialization.

Recent SARS-CoV-2 Activities

Since February 2020, we have entered into a number of collaboration agreements to accelerate the development, manufacture, and potential commercialization of therapies to treat and prevent SARS-CoV-2 and other coronaviruses.

We have also made substantial efforts to protect our intellectual property in this area, as evidenced by our recent expansion of our patent portfolio.

Development and Commercialization

In June 2020, we, Glaxo Wellcome UK Limited and Beecham S.A.

(collectively referred to as GSK), entered into a definitive collaboration agreement, or the GSK Agreement, pursuant to which we 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 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, or the Antibody Program;

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

The initial antibodies under the Antibody Program are VIR-7831 and VIR-7832, which have demonstrated high affinity for the SARS-CoV-2 spike protein and are highly potent in neutralizing SARS-CoV-2 in live-virus cellular assays.

In March and April 2020, we entered into two further amendments to our collaboration and license agreement with Alnylam Pharmaceuticals, Inc., or Alnylam, to expand our existing collaboration of five infectious disease targets to nine, including one targeting SARS-CoV-2 and potentially other coronaviruses, and up to three targeting human host factors for SARS-CoV-2.

Manufacturing

In February 2020, we entered into a development and manufacturing collaboration with WuXi Biologics (Hong Kong) Limited, or WuXi Biologics, for the clinical development, manufacturing, and commercialization of our proprietary antibodies developed for SARS-CoV-2.

In addition, in June 2020, we entered into a binding letter of intent with WuXi Biologics, or the WuXi Biologics Letter Agreement, under which WuXi Biologics will perform certain development and manufacturing services for our SARS-CoV-2 antibody program.

In July 2020, we assigned the WuXi Biologics Letter Agreement to GlaxoSmithKline Trading Services Limited, or GSKTSL, and GSKTSL entered into a non-exclusive Master Services Agreement for Commercial Manufacture of Drug Substance with WuXi Biologics, or 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 our SARS-CoV-2 antibody program.

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

In May 2020, we entered into a clinical development and manufacturing agreement with Biogen, Inc., or Biogen, under which Biogen will perform process development activities and specified manufacturing services under agreed statements of work for certain pre-commercial and clinical supply of SARS-CoV-2 antibodies.

In April 2020, we entered into a binding letter agreement, or the Samsung Letter Agreement, with Samsung Biologics Co., Ltd., or Samsung, under which Samsung will perform development and manufacturing services for our SARS-CoV-2 antibody program.

In July 2020, we assigned the Samsung Letter Agreement to GSKTSL, and GSKTSL entered into a Master Services Agreement with Samsung, or 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 our SARS-CoV-2 antibody program.

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

COVID-19 Business Update

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

With the global spread of the current COVID-19 pandemic, we have implemented a number of plans and policies designed to address and mitigate the impact of the COVID-19 pandemic on our employees and our business.

We continue to closely monitor the COVID-19 situation and will evolve our plans and policies as needed going forward.

In March 2020, some of our workforce transitioned to working remotely.

We are currently preparing plans to reopen our offices to allow employees to return when appropriate.

These plans will be based on a phased approach consistent with local government requirements, and focused on employee safety.

We have recently implemented plans to reopen our offices to allow employees to return when appropriate.

These plans are based on a phased approach consistent with local government requirements, and focused on employee safety, and contemplate returning to remote work should new restrictions be implemented.

We are working closely with our CDMOs to manage our supply chain activities and mitigate any potential disruptions to our clinical trial supplies as a result of the COVID-19 pandemic.

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We have entered into grant, license and collaboration arrangements with various third parties.

For details regarding these and other agreements, see Note 5—Grant, License and Collaboration Agreements and Note 13—Subsequent Events to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

For details regarding these and other agreements, see Note 5—Grant Agreements and Note 6—Collaboration and License Agreements to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Our Acquisitions

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(i) grant revenue;

and (ii) contract revenue.

and (ii) license and contract revenue.

Grant revenue is comprised of revenue derived from grant agreements with government-sponsored and private organizations.

Contract revenue is comprised of revenue generated from research and development services.

License and contract revenue is comprised of revenue generated from license rights issued and research and development services.

Operating Expenses

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Other Income (Expense), Net

Other income (expense), net consists of gains and losses from foreign currency transactions and from remeasurement of contingent consideration.

Other income (expense), net consists of gains and losses from foreign currency transactions and the remeasurement of contingent consideration related to our acquisition of TomegaVax, Inc., or TomegaVax.

Provision for Income Taxes

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R esults of Operations

Comparison of the Three Months Ended March 31, 2020 and 2019

Comparison of the Three and Six Months Ended June 30, 2020 and 2019

The following table summarizes our results of operations for the periods presented:

Three Months Ended

Six Months Ended

(in thousands)

Grant revenue

License revenue from a related party

Contract revenue

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Provision for income taxes

Total revenue was $5.7 million and $3.7 million for the three months ended March 31, 2020 and 2019, respectively.

The increase in total revenue was primarily due to an increase in revenue recognized under the HIV grant with the Bill & Melinda Gates Foundation due to supplemental award received in the first quarter of 2020 for reimbursement, in part, of prior period costs, and timing of research activities under this grant.

Total revenue was $67.0 million and $2.0 million for the three months ended June 30, 2020 and 2019, respectively, and $72.7 million and $5.7 million for the six months ended June 30, 2020 and 2019, respectively.

The increase in total revenue was primarily due to $43.3 million of revenue related to the license granted to GSK under our collaboration agreement, and $22.7 million of revenue related to Brii Biosciences Offshore Limited’s, or Brii Bio’s, exercise of its option to obtain exclusive rights to develop and commercialize compounds arising from VIR-2218 in greater China.

For the three months ended June 30, 2020, the decrease in grant revenue was due to the timing of research activities under the HIV and TB grants with the Bill & Melinda Gates Foundation.

Research and Development Expenses

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Three Months Ended

Six Months Ended

(in thousands)

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Total research and development expenses

Research and development expenses were $65.0 million and $25.9 million for the three months ended March 31, 2020 and 2019, respectively.

Comparison of three months ended June 30, 2020 and 2019

Research and development expenses were $79.7 million and $29.8 million for the three months ended June 30, 2020 and 2019, respectively.

This increase was primarily due to the following factors:

licenses and collaboration expenses increased by $32.5 million, which primarily attributable to an increase of $31.8 million on achievement of the first development milestone related to our collaboration agreement, or the Alnylam Agreement, with Alnylam;

licenses and collaboration expenses increased by $26.7 million, which was primarily attributable to increases of $18.4 million related to the change in fair value of the contingent consideration from our acquisition of Humabs Biomed SA, or Humabs, $10.0 million payment to Alnylam resulting from Brii Bio’s exercise of its option for VIR-2218, and $0.6 million in development milestone payments under third-party license agreements, partially offset by a $3.8 million reimbursement of costs pursuant to our collaboration with GSK;

contract manufacturing expense increased by $13.7 million, which was primarily attributable to an increase of $17.2 million related to initiation of manufacturing activities for our SARS-CoV-2 programs, partially offset by a decrease of $4.0 million related to the manufacturing for HBV and influenza A drug products initiated in the first half of 2018 and completed in the second quarter of 2019;

personnel-related expenses increased by $3.9 million, which was primarily attributable to an increase in our headcount;

other research and development expenses increased by $ 4.0 million, which was attributable to increases of $ 1.

4 million in external research costs due to increased clinical and manufacturing activities , $ 0 .

9 million in the allocation of facilities costs due to an increase in our headcoun t , and $ 1 .

7 million in supplies and equipment costs to support our programs related to COVID-19 ;

clinical costs increased $2.2 million, which was primarily attributable to our influenza A clinical trial, which started in late 2019.

The increase was partially offset by a decrease of $4.8 million in contract manufacturing expense, which was primarily attributable to the manufacturing for HBV and influenza A drug products initiated in the first half of 2018 and completed in the second quarter of 2019.

clinical costs increased $3.1 million, which was primarily attributable to start up activities related to our VIR-7831, VIR-3434 and VIR-1111 clinical trials;

other research and development expenses increased by $2.5 million, which was attributable to increases of $1.0 million in the allocation of facilities costs due to an increase in our headcount, $0.8 million in external research costs due to increased clinical and manufacturing activities, and $0.7 million in supplies and equipment costs to support our programs related to COVID-19.

Comparison of six months ended June 30, 2020 and 2019

Research and development expenses were $144.6 million and $55.7 million for the six months ended June 30, 2020 and 2019, respectively.

This increase was primarily due to the following factors:

licenses and collaboration expenses increased by $59.2 million, which primarily attributable to increases of $31.8 million on achievement of the first development milestone related to our Alnylam Agreement, $17.7 million related to the change in fair value of the contingent consideration from our acquisition of Humabs, $10.0 million payment to Alnylam resulting from Brii Bio's exercise of its option for VIR-2218, and $0.6 million in development milestone payments under third-party license agreements, partially offset by a $3.8 million reimbursement of costs pursuant to our collaboration with GSK;

personnel-related expenses increased by $9.0 million, which was primarily attributable to an increase in our headcount;

contract manufacturing expense increased by $8.9 million, which was primarily attributable to an increase of $17.2 million related to initiation of manufacturing activities for our SARS-CoV-2 programs, partially offset by a decrease of $8.8 million related to the manufacturing for HBV, HIV and influenza A drug products initiated in 2018 and completed in the first half of 2019;

other research and development expenses increased by $6.5 million, which was attributable to increases of $2.4 million in supplies and equipment costs to support our programs related to COVID-19, $2.2 million in external research costs due to increased clinical and manufacturing activities, and $1.9 million in the allocation of facilities costs due to an increase in our headcount;

clinical costs increased by $5.3 million, which was primarily attributable to our influenza A clinical trial, which started in late 2019, and start up activities related to our VIR-7831, VIR-1111 and VIR-3434 clinical trials.

General and Administrative Expenses

General and administrative expenses were $12.6 million and $8.6 million for the three months ended March 31, 2020 and 2019, respectively.

The increase was primarily due to increases in personnel-related expenses related to additional headcount, other facility expenses due to additional office space, and other expenses due to costs associated with operating as a public company.

General and administrative expenses were $16.4 million and $8.0 million for the three months ended June 30, 2020 and 2019, respectively, and $29.0 million and $16.6 million for the six months ended June 30, 2020 and 2019, respectively.

The increase was primarily due to increases in personnel-related expenses related to additional headcount, legal fees, external consulting and other expenses due to costs associated with operating as a public company.

Interest Income

Interest income was $1.8 million and $2.2 million for the three months ended March 31, 2020 and 2019, respectively.

The decrease was due to lower investment balances in the three months ended March 31, 2020 compared to the same period in 2019.

Interest income was $0.8 million and $2.3 million for the three months ended June 30, 2020 and 2019, respectively, and $2.6 million and $4.5 million for the six months ended June 30, 2020 and 2019, respectively.

The decrease was due to lower investment balances in the three and six months ended June 30, 2020 compared to the same periods in 2019.

Other Income (Expense), Net

Other expense, net was $7.1 million and $0.1 million for the three months ended March 31, 2020 and 2019, respectively.

The increase in expense was primarily related to the change in fair value of the contingent consideration related to our acquisition of TomegaVax, Inc.

Other expense, net was $2.9 million and $0.4 million for the three months ended June 30, 2020 and 2019, respectively, and $10.0 million and $0.6 million for the six months ended June 30, 2020 and 2019, respectively.

The increase in expense was primarily related to the change in fair value of the contingent consideration related to our acquisition of TomegaVax.

Liquidity, Capital Resources and Capital Requirements

Sources of Liquidity

As of March 31, 2020, excluding restricted cash, we had $361.8 million in cash, cash equivalents and investments, and an accumulated deficit of $445.8 million.

We have financed our operations primarily through sales of our common stock in conjunction with the IPO, convertible preferred securities and payments received under our collaboration agreements.

As of June 30, 2020, excluding restricted cash, we had $552.4 million in cash, cash equivalents and short-term investments, and an accumulated deficit of $476.9 million.

We have financed our operations primarily through sales of our common stock and convertible preferred securities and payments received under our grant and collaboration agreements.

On October 10, 2019, our registration statement on Form S-1 was declared effective by the SEC and our shares began trading on The Nasdaq Global Select Market on October 11, 2019.

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As a result of the IPO, we received $126.4 million in net proceeds, after deducting underwriting discounts and commissions of approximately $10.0 million and offering expenses of approximately $6.4 million.

In April 2020, we issued 6,626,027 shares of our common stock to GGL (an affiliate of GSK) at a price per share of $37.73, for an aggregate purchase price of approximately $250.0 million.

In April 2020, we issued 6,626,027 shares of our common stock to Glaxo Group Limited (an affiliate of GSK) at a price per share of $37.73, for an aggregate purchase price of approximately $250.0 million.

Our primary use of our capital resources is to fund our operating expenses, which consist primarily of expenditures related to identifying, acquiring, developing, manufacturing and in-licensing our technology platforms and product candidates, and conducting preclinical studies and early clinical trials, and to a lesser extent, general and administrative expenditures.

Future Funding Requirements

Based upon our current operating plan, we believe that our existing cash, cash equivalents and investments as of March 31, 2020, will enable us to fund our operating expenses and capital expenditure requirements through at least the next 12 months from the issuance date of the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

However, we will still need to raise substantial additional capital to fund the development of our product candidates.

Based upon our current operating plan, we believe that our existing cash, cash equivalents and short-term investments as of June 30, 2020 together with the net proceeds from our July 2020 follow-on offering, will enable us to fund our operations through at least the next 12 months from the issuance date of the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned.

Moreover, it is particularly difficult to estimate with certainty our future expenses given the dynamic and rapidly evolving nature of our business and the COVID-19 pandemic environment generally.

We will also need to raise additional capital to complete the development and commercialization of our product candidates and fund certain of our existing manufacturing and other commitments.

We anticipate raising additional capital through the sale of our equity securities, incurring debt, entering into collaboration, licensing or similar arrangements with third parties, or receiving research contributions, grants or other sources of financing to fund our operations.

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The following table summarizes our cash flows for the periods indicated:

Three Months Ended

Six Months Ended

(in thousands)

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Operating Activities

During the three months ended March 31, 2020, net cash used in operating activities was $48.4 million.

This consisted primarily of a net loss of $77.2 million and an increase in our net operating assets of $0.8 million, partially offset by non-cash charges of $29.6 million.

The change in our net operating assets of $0.8 million was primarily due to a decrease in deferred revenue of $3.2 million related to revenue recognized from the Bill & Melinda Gates Foundation grants and a decrease in accrued liabilities and other long-term liabilities of $10.2 million, which was partially offset by an increase of $12.9 million in accounts payable.

The non-cash charges of $29.6 million primarily consisted of $3.0 million for stock-based compensation expense, $16.8 million for the change in fair value of the derivative liability under the Alnylam Agreement, $7.2 million for revaluation of contingent consideration and $1.0 million for depreciation and amortization.

During the three months ended March 31, 2019, net cash used in operating activities was $29.5 million.

This consisted primarily of a net loss of $28.7 million and an increase in our net operating assets of $4.7 million, partially offset by non-cash charges of $3.9 million.

The change in our net operating assets of $4.7 million was primarily due to a decrease in deferred revenue of $3.4 million related to revenue recognized from the Bill & Melinda Gates Foundation grants and a decrease in accrued liabilities and other long-term liabilities of $2.0 million, which was partially offset by an increase of $1.2 million in accounts payable.

The non-cash charges of $3.9 million primarily consisted of $2.5 million for stock-based compensation expense, $0.7 million for revaluation of contingent consideration and $0.7 million for depreciation and amortization.

During the six months ended June 30, 2020, net cash used in operating activities was $59.0 million.

This consisted primarily of a net loss of $108.4 million, an increase in our net operating assets of $2.6 million, and a payment on contingent consideration of $6.5 million related to a milestone achieved related to our Humabs acquisition, partially offset by non-cash charges of $58.5 million.

The change in our net operating assets of $2.6 million was primarily due to a decrease in deferred revenue of $4.0 million related to revenue recognized from the Bill & Melinda Gates Foundation grants, an increase of $2.2 million in prepaid expenses and other current assets related to a receivable under our GSK collaboration agreement, a decrease in operating lease liabilities of $1.6 million due to lease payments, and a decrease in accounts payable of $1.3 million, which was partially offset by an increase in accrued liabilities and other long-term liabilities by $6.8 million due to higher research and development activities.

The non-cash charges of $58.5 million primarily consisted of $27.8 million for revaluation of contingent consideration, $16.8 million for the change in fair value of the derivative liability under the Alnylam Agreement, $8.7 million for stock-based compensation expense, and $2.1 million for depreciation and amortization.

During the six months ended June 30, 2019, net cash used in operating activities was $53.8 million.

This consisted primarily of a net loss of $62.6 million, partially offset by a decrease in our net operating assets of $2.9 million and non-cash charges of $5.9 million.

The decrease in our net operating assets of $2.9 million was primarily due to an increase in deferred revenue of $2.9 million related to upfront payments received from the Bill & Melinda Gates Foundation grants.

The non-cash charges of $5.9 million primarily consisted of $3.9 million for stock-based compensation expense and $1.5 million for depreciation and amortization expense.

Investing Activities

During the three months ended March 31, 2020, net cash provided by investing activities was $104.2 million.

During the six months ended June 30, 2020, net cash provided by investing activities was $114.8 million.

This consisted primarily of $247.2 million in proceeds received from investments which matured during the period, partially offset by purchases of investments of $129.9 million and purchases of property and equipment of $2.6 million.

During the three months ended March 31, 2019, net cash used in investing activities was $274.2 million.

This consisted primarily of purchases of short-term investments of $322.8 million and purchases of property and equipment of $3.5 million, partially offset by $52.1 million in proceeds received from short-term investments which matured during the period.

During the six months ended June 30, 2019, net cash used in investing activities was $229.7 million.

This consisted of purchases of short-term investments of $360.0 million and purchases of property and equipment of $6.1 million, partially offset by $136.5 million in proceeds received from short-term investments which matured during the period.

Financing Activities

During the three months ended March 31, 2019, cash provided in financing activities was $317.4 million.

This consisted primarily of net proceeds received from the issuance of our Series B convertible preferred stock of $317.3 million.

During the six months ended June 30, 2020, net cash provided by financing activities was $205.4 million.

This consisted primarily of proceeds received from the issuance of our common stock to GSK of $206.7 million in April 2020 and from exercises of stock options of $2.4 million, partially offset by a payment of contingent consideration related to our Humabs acquisition of $3.5 million.

During the six months ended June 30, 2019, net cash provided by financing activities was $317.4 million.

This consisted primarily of net proceeds received from the issuance of our Series B convertible preferred stock of $317.3 million in January 2019.

Contractual Obligations and Commitments

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During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules of the SEC.

Brii Biosciences Limited, or Brii Bio Parent, and its wholly owned subsidiary Brii Biosciences Offshore Limited, or Brii Bio, are variable interest entities due to their reliance on future financing and insufficient equity at risk.

However, we do not have the power to direct activities which most significantly impact the economic success of these entities and are not the primary beneficiary, and therefore we do not consolidate Brii Bio Parent or Brii Bio.

Brii Biosciences Limited, or Brii Bio Parent, and its wholly owned subsidiary Brii Bio are variable interest entities due to their reliance on future financing and insufficient equity at risk.

However, we do not have the power to direct activities that most significantly impact the economic success of these entities and are not the primary beneficiary, and therefore we do not consolidate Brii Bio Parent or Brii Bio.

JOBS Act Accounting Election

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As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

In light of our public float at June 30, 2020, w e expect that we will no longer be an emerging growth company on December 31, 2020.

Critical Accounting Policies and Estimates

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Actual results may differ from these estimates.

Except for the adoption of the new lease accounting standard on January 1, 2020, as described below and in Note 2 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, there have been no significant changes in our critical accounting policies during the three months ended March 31, 2020, as compared with those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 26, 2020.

Except as noted below and in Note 2 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, there have been no significant changes in our critical accounting policies during the six months ended June 30, 2020, as compared with those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 26, 2020.

Revenue Recognition

License and Contract Revenue

In accordance with Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, or ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods and services.

To determine revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when or as we satisfy a performance obligation.

For collaborative arrangements that fall within the scope of ASC 808, Collaborative Arrangements, or ASC 808, we first determine 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, we apply the revenue recognition model under ASC 606 or other guidance, as deemed appropriate.

We have entered into a number of license and collaboration agreements that fall within the scope of ASC 606.

We evaluate the promised goods or services in these agreements to determine which ones represent distinct performance obligations.

These agreements may include the following types of promised goods or services:

(i) grants of licenses, (ii) performance of research and development services, and (iii) participation on joint research and/or development committees.

They also may include options to obtain licenses to our intellectual property.

Prior to recognizing revenue, we makes estimates of the transaction price, including variable consideration that is subject to a constraint.

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:

non-refundable upfront payments, reimbursement for research services, research, development or regulatory milestone payments, and royalty and commercial sales milestone payments.

If there are multiple distinct performance obligations, we allocate the transaction price to each distinct performance obligation based on their estimated standalone selling prices, or SSP.

For performance obligations satisfied over time, we estimate the efforts needed to complete the performance obligation and recognize revenue by measuring the progress towards complete satisfaction of the performance obligation using an input measure.

For arrangements that include sales-based royalties, including commercial milestone payments based on pre-specified level of sales, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Achievement of these royalties and commercial milestones may solely depend upon performance of the licensee.

Management may be required to exercise considerable judgment in estimating revenue to be recognized.

Judgment is required in identifying performance obligations, estimating the transaction price, estimating the SSP of identified performance obligations, which may include development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success, and estimating the progress towards satisfaction of performance obligations.

On January 1, 2020, we adopted ASC 842, Leases, or ASC 842, using the optional transition method and applied the standard only to leases that existed at that date.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis