Vir Biotechnology, Inc. 10-Q

Item 1. Financial Statements. VIR BIOTECHNOLOGY, INC. Condensed Consolidated Balance Sheets (in thousands, except share and per share data) (unaudited) June 30, 2020 December 31, 2019 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 371,781 $ 109,335 Short-term investments 180,599 274,101 Restricted cash and cash equivalents, current 11,024 6,181 Prepaid expenses and other current assets 15,357 13,378 Total current assets 578,761 402,995 Intangible assets, net 35,082 35,694 Goodwill 16,937 16,937 Property and equipment, net 16,311 16,308 Operating right-of-use assets 15,177 — Restricted cash and cash equivalents, noncurrent 1,192 7,300 Long-term investments — 24,290 Other assets 8,778 8,547 TOTAL ASSETS $ 672,238 $ 512,071 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable 4,382 $ 5,881 Accrued and other liabilities 38,560 26,495 Deferred revenue, current portion 7,298 6,181 Contingent consideration, current portion 4,700 8,200 Derivative liability — 12,449 Total current liabilities 54,940 59,206 Deferred revenue, noncurrent 3,815 12,670 Operating lease liabilities, noncurrent 12,762 — Contingent consideration, noncurrent 30,670 9,380 Deferred tax liability 3,305 3,305 Other long-term liabilities 2,967 3,568 TOTAL LIABILITIES 108,459 88,129 Commitments and contingencies (Note 8) STOCKHOLDERS’ EQUITY: Preferred stock, $ 0.0001 par value; 10,000,000 shares authorized as of June 30, 2020 and December 31, 2019; 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 June 30, 2020 and December 31, 2019; 117,727,086 and 107,648,925 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively 12 11 Additional paid-in capital 1,040,988 793,051 Accumulated other comprehensive loss ( 295 ) ( 601 ) Accumulated deficit ( 476,926 ) ( 368,519 ) TOTAL STOCKHOLDERS’ EQUITY 563,779 423,942 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 672,238 $ 512,071 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 VIR BIOTECHNOLOGY, INC. Condensed Consolidated Statements of Operations ( in thousands, except share and per share data ) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenues: Grant revenue $ 719 $ 1,961 $ 5,950 $ 5,605 License revenue from a related party 22,747 — 22,747 — Contract revenue 43,522 86 44,009 103 Total revenue 66,988 2,047 72,706 5,708 Operating expenses: Research and development 79,653 29,805 144,632 55,677 General and administrative 16,386 8,011 29,035 16,570 Total operating expenses 96,039 37,816 173,667 72,247 Loss from operations ( 29,051 ) ( 35,769 ) ( 100,961 ) ( 66,539 ) Other income (expense): Interest income 825 2,307 2,580 4,552 Other income (expense), net ( 2,895 ) ( 447 ) ( 9,964 ) ( 592 ) Total other income (expense) ( 2,070 ) 1,860 ( 7,384 ) 3,960 Loss before provision for income taxes ( 31,121 ) ( 33,909 ) ( 108,345 ) ( 62,579 ) Provision for income taxes ( 46 ) ( 19 ) ( 62 ) ( 19 ) Net loss $ ( 31,167 ) $ ( 33,928 ) $ ( 108,407 ) $ ( 62,598 ) Net loss per share, basic and diluted $ ( 0.27 ) $ ( 3.64 ) $ ( 0.97 ) $ ( 6.83 ) Weighted-average shares outstanding, basic and diluted 114,980,652 9,327,651 111,684,283 9,165,311 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 VIR BIOTECHNOLOGY, INC. Condensed Consolidated Statements of Comprehensive Loss ( in thousands) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Net loss $ ( 31,167 ) $ ( 33,928 ) $ ( 108,407 ) $ ( 62,598 ) Other comprehensive income (loss): Unrealized gain (loss) on investments ( 549 ) 145 295 254 Amortization of actuarial loss 6 — 11 — Other comprehensive income (loss) ( 543 ) 145 306 254 Comprehensive loss $ ( 31,710 ) $ ( 33,783 ) $ ( 108,101 ) $ ( 62,344 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 VIR BIOTECHNOLOGY, INC. Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (in thousands, except share amounts) (unaudited) Accumulated Additional Other Total Convertible Preferred Stock Common Stock Paid-in Comprehensive Accumulated Stockholders' Share Amount Share Amount Capital Income (Loss) Deficit Equity (Deficit) Balance at March 31, 2020 — $ — 108,350,368 $ 11 $ 825,833 $ 248 $ ( 445,759 ) $ 380,333 Issuance of common stock in connection with the achievement of a milestone — — 1,111,111 — — — — — Issuance of common stock in connection with a collaboration agreement — — 6,626,027 1 206,698 — — 206,699 Issuance of common stock for cashless exercise of warrant — — 211,774 — — — — — Vesting of restricted common stock — — 612,546 — 462 — — 462 Exercise of stock options — — 815,260 — 2,245 — — 2,245 Stock-based compensation — — — — 5,750 — — 5,750 Other comprehensive loss — — — — — ( 543 ) — ( 543 ) Net loss — — — — — — ( 31,167 ) ( 31,167 ) Balance at June 30, 2020 — $ — 117,727,086 $ 12 $ 1,040,988 $ ( 295 ) $ ( 476,926 ) $ 563,779 Accumulated Additional Other Total Convertible Preferred Stock Common Stock Paid-in Comprehensive Accumulated Stockholders' Share Amount Share Amount Capital Income (Loss) Deficit Equity (Deficit) Balance at March 31, 2019 88,112,733 $ 636,612 9,101,154 $ 1 $ 17,192 $ 95 $ ( 222,506 ) $ ( 205,218 ) Vesting of restricted common stock — — 197,983 — — — — — Exercise of stock options — — 423,701 — 635 — — 635 Stock-based compensation — — — — 1,399 — — 1,399 Other comprehensive income — — — — — 145 — 145 Net loss — — — — — — ( 33,928 ) ( 33,928 ) Balance at June 30, 2019 88,112,733 $ 636,612 9,722,838 $ 1 $ 19,226 $ 240 $ ( 256,434 ) $ ( 236,967 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 6 VIR BIOTECHNOLOGY, INC. Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (in thousands, except share amounts) (unaudited) Accumulated Additional Other Total Convertible Preferred Stock Common Stock Paid-in Comprehensive Accumulated Stockholders' Share Amount Share Amount Capital Income (Loss) Deficit Equity (Deficit) Balance at December 31, 2019 — $ — 107,648,925 $ 11 $ 793,051 $ ( 601 ) $ ( 368,519 ) $ 423,942 Reclassification of derivative liability to additional paid-in capital — — — — 29,245 — — 29,245 Issuance of common stock in connection with the achievement of a milestone — — 1,111,111 — — — — — Issuance of common stock in connection with a collaboration agreement — — 6,626,027 1 206,698 — — 206,699 Issuance of common stock for cashless exercise of warrant — — 211,774 — — — — — Vesting of restricted common stock — — 1,230,625 — 889 — — 889 Exercise of stock options — — 898,624 — 2,388 — — 2,388 Stock-based compensation — — — — 8,717 — — 8,717 Other comprehensive income — — — — — 306 — 306 Net loss — — — — — — ( 108,407 ) ( 108,407 ) Balance at June 30, 2020 — $ — 117,727,086 $ 12 $ 1,040,988 $ ( 295 ) $ ( 476,926 ) $ 563,779 Accumulated Additional Other Total Convertible Preferred Stock Common Stock Paid-in Comprehensive Accumulated Stockholders' Share Amount Share Amount Capital Income (Loss) Deficit Equity (Deficit) Balance at December 31, 2018 69,910,520 $ 309,137 8,858,799 $ 1 $ 14,672 $ ( 14 ) $ ( 193,836 ) $ ( 179,177 ) Issuance of Series B convertible preferred stock, net of issuance cost of $ 165 18,202,213 327,475 — — — — — — Vesting of restricted common stock — — 395,966 — — — — — Exercise of stock options — — 468,073 — 702 — — 702 Stock-based compensation — — — — 3,852 — — 3,852 Other comprehensive income — — — — — 254 — 254 Net loss — — — — — — ( 62,598 ) ( 62,598 ) Balance at June 30, 2019 88,112,733 $ 636,612 9,722,838 $ 1 $ 19,226 $ 240 $ ( 256,434 ) $ ( 236,967 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 7 VIR BIOTECHNOLOGY, INC. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Six Months Ended June 30, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 108,407 ) $ ( 62,598 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,061 1,533 Amortization of intangible assets 612 612 Amortization of premiums (accretion of discounts) on investments, net 818 ( 1,220 ) Noncash lease expense 1,646 — Change in estimated fair value of contingent consideration 27,790 350 Payment of contingent consideration in excess of acquisition date fair value ( 6,453 ) — Change in estimated fair value of derivative liability 16,796 — Change in estimated fair value of convertible preferred stock warrant liability — 784 Stock-based compensation 8,717 3,852 Other 11 — Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 2,159 ) ( 653 ) Other assets ( 361 ) ( 212 ) Accounts payable ( 1,342 ) ( 833 ) Accrued liabilities and other long-term liabilities 6,791 1,691 Operating lease liabilities ( 1,557 ) — Deferred revenue ( 4,011 ) 2,902 Net cash used in operating activities ( 59,048 ) ( 53,792 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 2,645 ) ( 6,131 ) Purchases of investments ( 129,899 ) ( 360,021 ) Maturities of investments 247,168 136,471 Proceeds from disposal of an asset held sale 180 — Net cash provided by (used in) investing activities 114,804 ( 229,681 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock in connection with a collaboration agreement 206,699 — Proceeds from issuance of convertible preferred stock, net of issuance costs — 317,335 Payment of contingent consideration ( 3,547 ) — Payment of principal on financing lease obligations ( 115 ) — Payment of offering costs related to initial public offering — ( 625 ) Proceeds from exercise of stock options 2,388 702 Net cash provided by financing activities 205,425 317,412 Net increase in cash, cash equivalents and restricted cash and cash equivalents 261,181 33,939 Cash, cash equivalents and restricted cash and cash equivalents at beginning of period 122,816 59,362 Cash, cash equivalents and restricted cash and cash equivalents at end of period $ 383,997 $ 93,301 NONCASH INVESTING AND FINANCING ACTIVITIES: Property and equipment purchases included in accounts payable and accrued liabilities $ 312 $ 526 Reclassification of derivative liability to additional paid-in capital $ 29,245 $ — Deferred offering costs in accounts payable and accrued liabilities $ 690 $ 2,284 Advanced proceeds applied to convertible preferred stock issuance $ — $ 10,140 RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONDENSED CONSOLIDATED BALANCE SHEETS: Cash and cash equivalents $ 371,781 $ 80,678 Restricted cash and cash equivalents, current 11,024 11,620 Restricted cash and cash equivalents, noncurrent 1,192 1,003 Total cash, cash equivalents and restricted cash $ 383,997 $ 93,301 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 1. Organization Vir Biotechnology, Inc. (“Vir” or the “Company”) is a clinical-stage immunology company focused on combining immunologic insights with cutting-edge technologies to treat and prevent serious infectious diseases. 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 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 On September 16, 2019, the Company’s board of directors approved an amendment to the Company’s amended and restated certificate of incorporation to effect a 1-for-4.5 reverse split (“Reverse Split”) of shares of the Company’s common and convertible preferred stock, which was effected on September 27, 2019. The par value per share and authorized shares of common stock and convertible preferred stock were not adjusted as a result of the Reverse Split. All of the share and per share information included in the accompanying condensed consolidated financial statements has been adjusted to reflect the Reverse Split. Initial Public Offering On October 10, 2019, the Company completed its initial public offering (“IPO”) of its common stock. In connection with its IPO, the Company issued and sold 7,142,858 shares of its common stock at a price of $ 20.00 per share. As a result of the IPO, the Company received $ 126.4 million in net proceeds, after deducting underwriting discounts, commissions and offering expenses. At the closing of the IPO, 88,112,733 shares of outstanding convertible preferred stock were automatically converted into 88,112,733 shares of common stock and a warrant to purchase 244,444 shares of convertible preferred stock was converted into a warrant to purchase 244,444 shares of common stock. Need for Additional Capital The Company has incurred net losses since inception and expects such losses to continue over the next several years. 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, $ 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. 2. Summary of Significant Accounting Policies Basis of Presentation The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. The condensed consolidated financial statements include the accounts of Vir and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. 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 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. As such, these interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 26, 2020. 9 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements Use of Estimates The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates. Concentration of Credit Risk and Other Risks and Uncertainties 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. The extent to which the COVID-19 pandemic impacts the Company’s business, clinical development and regulatory efforts, corporate development objectives and the value of and market for its common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the U.S., Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease. In addition, the Company is subject to a number of other challenges and risks similar to other biopharmaceutical companies in the early stage, including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, the need to obtain marketing approval for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s products and protection of proprietary technology. 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 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. Cash and cash equivalents are deposited in checking and sweep accounts at a financial institution. Such deposits may, at times, exceed federally insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company’s investment policy limits investments to certain types of securities issued by the U.S. government, its agencies and institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. 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 June 30, 2020, the Company has no off-balance sheet concentrations of credit risk. Investments Investments include available-for-sale securities and are carried at estimated fair value. The Company’s valuations of marketable securities are generally derived from independent pricing services based on quoted prices in active markets for similar securities at period end. Generally, investments with original maturities beyond three months at the date of purchase and which mature at, or less than 12 months from, the condensed consolidated balance sheet date are considered short-term investments, with all others considered to be long-term investments. Unrealized gains and losses deemed temporary in nature are reported as a component of accumulated comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income, on the condensed consolidated statements of operations. 10 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements The Company, through its investment in Brii Biosciences Limited, holds privately held equity securities in which the Company does not have a controlling interest or significant influence. The Company’s investment in Brii Biosciences Limited is recorded at cost and adjusted for impairments and observable price changes with the same or similar security from the same issuer. The valuation of the Company’s investment in Brii Biosciences Limited utilizes significant unobservable inputs or data in an inactive market and the valuation requires the Company’s judgment due to the absence of market prices and inherent lack of liquidity. 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 6 —Collaboration and License Agreements for additional information on the Company’s investment in Brii Biosciences Limited . Restricted Cash and Cash Equivalents Restricted cash and cash equivalents represent money market funds to secure a standby letter of credit and a security deposit with financial institutions, both pursuant to office and laboratory space lease agreements; and a holdback retained by the Company pursuant to the acquisition of Agenovir Corporation (“Agenovir”) in 2018, which was paid to Agenovir in the second quarter of 2019. Additionally, funds received from certain grants are restricted as to their use and are therefore classified as restricted cash and cash equivalents. Revenue Recognition Grant Revenue Grants received, including cost reimbursement agreements, are assessed to determine if the agreement should be accounted for as an exchange transaction or a contribution. An agreement is accounted for as a contribution if the resource provider does not receive commensurate value in return for the assets transferred. Contributions are recognized as grant revenue when all donor-imposed conditions have been met. 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. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs 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 the Company satisfies a performance obligation. 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. The Company evaluates 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 the Company’s intellectual property. Prior to recognizing revenue, the Company 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. 11 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements If there are multiple distinct performance obligations, the Company allocates the transaction price to each distinct performance obligation based on their estimated standalone selling prices. For performance obligations satisfied over time, the Company estimates the efforts needed to complete the performance obligation and recognizes 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, the Company recognizes 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. Acquisitions Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method, assets acquired, including in-process research and development (“IPR&D”) projects, and liabilities assumed are recorded at their respective fair values as of the acquisition date in the Company’s condensed consolidated financial statements. Any excess fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill. Contingent consideration obligations incurred in connection with the business combination are recorded at their fair values 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. When the Company determines that assets acquired do not meet the definition of a business under the acquisition method of accounting, the transaction is accounted for as an acquisition of assets. Therefore, the initial cost of acquired IPR&D is expensed, and no goodwill is recorded. 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. Embedded Derivatives 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. 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. Leases 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 12 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 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. The Company elected the package of practical expedients allowed under ASC 842, which permits the Company to account for its existing operating leases as operating leases under the new guidance, without reassessing the Company’s prior conclusions about lease identification, lease classification and initial direct cost. 12 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements Adoption of ASC 842 resulted in the recognition of operating lease ROU assets and operating lease liabilities of $ 16.8 million and $ 17.5 million, respectively, on the Company’s condensed consolidated balance sheet as of January 1, 2020. The difference between the ROU assets and lease liabilities is attributed to the elimination of deferred rent. The adoption of the new standard did not have an impact on the Company's beginning accumulated deficit or statement of operations. The Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial direct costs incurred, as applicable. As the implicit rate in the Company's leases is generally unknown, the Company uses an incremental borrowing rate estimated based on the information available at the lease commencement date in determining the present value of future lease payments. When calculating its estimated incremental borrowing rates, the Company considers its credit risk, the lease term, the total lease payments and the impact of collateral, as necessary. The lease terms may include options to extend or terminate the lease when the Company is reasonably certain it will exercise such options. Rent expense for the Company's operating leases is recognized on a straight-line basis within operating expenses over the reasonably assured lease term. The Company elected to not separate lease and non-lease components for any leases within its existing classes of assets and, as a result, accounts for the lease and non-lease components as a single lease component. The Company has also elected to not apply the recognition requirement to any leases within its existing classes of assets with a term of 12 months or less. Recently Adopted Accounting Pronouncements In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the current requirements for testing goodwill for impairment by eliminating the second step of the two-step impairment test to measure the amount of an impairment loss. ASU 2017-04 is effective for the Company’s interim and annual reporting periods beginning after December 31, 2021. The Company early adopted ASU 2017-04 on January 1, 2020 and the adoption had no impact on its condensed consolidated financial statements. In August 2018, the FASB issued ASU 2018‑13, Fair Value Measurement (Topic 820) (“ASU 2018-13”), which modifies, removes and adds certain disclosure requirements on fair value measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. 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 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 In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including the Company’s financial instruments. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will likely result in more timely recognition of credit losses. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”). 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 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. 13 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 3. Fair Value Measurements The Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows: • Level 1: Inputs which include quoted prices in active markets for identical assets and liabilities. • Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The carrying amounts of the Company’s financial instruments, including accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. 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: June 30, 2020 Valuation Hierarchy Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Aggregate Fair Value (in thousands) Assets: Money market funds (1) Level 1 $ 381,942 $ — $ — $ 381,942 U.S. government treasuries Level 2 180,169 433 ( 3 ) 180,599 Total financial assets $ 562,111 $ 433 $ ( 3 ) $ 562,541 (1) Includes $ 12.2 million of restricted cash equivalents. December 31, 2019 Valuation Hierarchy Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Aggregate Fair Value (in thousands) Assets: Money market funds (1) Level 1 $ 106,127 $ — $ — $ 106,127 U.S. government treasuries (2) Level 2 298,256 140 ( 5 ) 298,391 Bank time deposits Level 2 2,500 — — 2,500 Total financial assets $ 406,883 $ 140 $ ( 5 ) $ 407,018 (1) Includes $ 13.5 million of restricted cash equivalents. (2) Includes $ 24.3 million classified as long-term investments. 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 June 30, 2020, Level 3 liabilities consist of contingent consideration. Contingent Consideration Contingent consideration includes potential milestone payments in connection with the acquisitions of Humabs Biomed SA (“Humabs”) and TomegaVax, Inc. (“TomegaVax”). See further discussion in Note 4—Acquisitions. 14 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 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. 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%) (1) 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. 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 Volatility 60 % Discount rate 11 % Probability of achievement 14% - 16% (15%) (1) 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. 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. The discount rate captures the credit risk associated with the payment of the contingent consideration when earned and due. 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 Range (Weighted-Average) 1 Volatility 88 % Discount rates 0.0% - 0.2% (0.1%) (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. 15 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. (“Alnylam”). 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. As of December 31, 2019, the estimated fair value of the derivative liability was $ 12.4 million. On March 10, 2020, the Company remeasured and reclassified the derivative liability of $ 29.2 million to additional paid-in capital upon achievement of the development milestone. The following table sets forth the changes in the estimated fair value of the Company’s Level 3 financial liabilities (in thousands): Contingent Consideration Derivative Liability Total Balance at December 31, 2019 $ 17,580 $ 12,449 $ 30,029 Changes in fair value 27,790 16,796 44,586 Payment of contingent consideration related to Humabs acquisition ( 10,000 ) — ( 10,000 ) Reclassification of derivative liability to additional paid-in capital upon achievement of development milestone — ( 29,245 ) ( 29,245 ) Balance at June 30, 2020 $ 35,370 $ — $ 35,370 4. Acquisitions Acquisition of TomegaVax In September 2016, the Company entered into an agreement and plan of merger (“TomegaVax Merger Agreement”) to acquire all of the equity interests of TomegaVax. The primary asset purchased in the acquisition was an in-process cytomegalovirus (“CMV”) vector-based vaccine platform for use in HBV, HIV, and TB. 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 concerning 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. 16 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 In August 2017, the Company acquired all of the outstanding equity of Humabs, a private Swiss company which discovers and develops monoclonal antibodies derived from individuals whose immune systems have successfully responded to major diseases. The Company acquired all of Humabs’ rights, title and interest in and to substantially all of the assets of Humabs except for rights under certain license agreements with third-parties. The Company is obligated to pass-through to the former Humabs shareholders any amounts received by Humabs under such license agreements, net of any program expenses. The transaction was accounted for as an acquisition of a business. 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. 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, 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. The Company concluded that the assets acquired and liabilities assumed did not meet the definition of a business as a limited number of inputs were acquired but no substantive processes were acquired. As such, the acquisition was accounted for as an asset purchase. 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. In addition, during a specified period following the closing of the Agenovir acquisition, if the Company successfully commercializes one or more products arising from the HBV program or the HPV program, the Company will owe milestone payments for the achievement of specified levels of worldwide annual net sales of up to $ 90.0 million for products arising from each program, or up to $ 180.0 million in the aggregate, if the Company were to commercialize products from both the HBV program and the HPV program. 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 June 30, 2020, therefore no amounts were recognized relating to the contingent consideration. 5 . 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 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. The 2017 Grant expired on May 31, 2019 . 17 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 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 $ 0.4 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 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 $ 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 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. 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 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 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. 6 . Collaboration and License Agreements GSK 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 18 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. 19 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 In May 2018, the Company entered into an option and license agreement (the “Brii Agreement”) with Brii Biosciences Limited (previously named BiiG Therapeutics Limited) (“Brii Bio Parent”) and Brii Biosciences Offshore Limited (“Brii Bio”), pursuant to which the Company granted to Brii Bio, with respect to up to four of the Company’s programs, an exclusive option to obtain exclusive rights to develop and commercialize compounds and products arising from such programs in China, Taiwan, Hong Kong and Macau (collectively, the “China Territory”) for the treatment, palliation, diagnosis, prevention or cure of acute and chronic diseases of infectious pathogen origin or hosted by pathogen infection (the “Field of Use”). The Company’s HBV siRNA program being developed under the Alnylam Agreement (described below) is included within the Brii Agreement as a program for which Brii Bio may exercise one of its options. In partial consideration for the options granted by the Company to Brii Bio, Brii Bio Parent and Brii Bio granted the Company, with respect to up to four of Brii Bio Parent’s or Brii Bio’s programs, an exclusive option to be granted exclusive rights to develop and commercialize compounds and products arising from such Brii Bio programs in the United States for the Field of Use. 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 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 transferred to Alnylam a specified percentage of such equity consideration allocable to such program as discussed below. 20 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. Brii Bio will also be required to pay regulatory milestone payments on a licensed product-by-licensed product basis ranging from the mid-single-digit millions up to $ 30.0 million, also determined based on the commercial potential of such program. Following commercialization, Brii Bio will be required to make sales milestone payments based on certain specified levels of aggregate annual net sales of products arising from each licensed program in the China Territory, up to an aggregate of $ 175.0 million per licensed program. Brii Bio also will pay royalties to the Company that range from the mid-teens to the high-twenties, as described below. Upon exercise of each option for a Brii Bio program, the Company will be required to pay to Brii Bio an option exercise fee ranging from the low tens of millions to up to $ 50.0 million, determined based on the commercial potential of the licensed program. The Company will be required to make regulatory milestone payments to Brii Bio on a licensed product-by-licensed product basis ranging from the low tens of millions up to $ 100.0 million, also determined based on the commercial potential of such program. The Company will also be required to make sales milestone payments based on certain specified levels of aggregate annual net sales of products in the United States arising from each licensed program, up to an aggregate of $ 175.0 million per licensed program. In addition, the Company is obligated under the Brii Agreement to pay Brii Bio tiered royalties based on net sales of products arising from the licensed programs in the United States, and Brii Bio is obligated to pay the Company tiered royalties based on net sales of products arising from the licensed programs in the China Territory. The rates of royalties payable by the Company to Brii Bio, and by Brii Bio to the Company, on net sales range from mid-teens to high-twenties. Each party’s obligations to pay royalties expires, on a product-by-product and territory-by-territory basis, on the latest of 10 years after the first commercial sale of such licensed product in the United States or China Territory, as applicable; the expiration or abandonment of licensed patent rights that cover such product in the United States or China Territory, as applicable; and the expiration of regulatory exclusivity in the United States or the China Territory, as applicable. Royalty rates are subject to specified reductions and offsets. 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). 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 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. The Company also determined that it does not exercise significant influence over Brii Bio Parent or Brii Bio. The investment in Brii Bio Parent was recorded at its initial estimated fair value of $ 6.6 million. The Company also recorded a contract liability of $ 6.6 million within deferred revenue which represents deferred consideration for the four options that the Company granted to Brii Bio. The deferred consideration will be recognized when Brii Bio exercises its options or the options expire. 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 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 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. 21 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. Alnylam 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. The technology licensed under the Alnylam Agreement forms the basis of the Company’s siRNA technology platform. Pursuant to the Alnylam Agreement, the Company obtained a worldwide, exclusive license to develop, manufacture and commercialize the HBV siRNA product candidates, including VIR-2218, for all uses and purposes other than agricultural, horticultural, forestry, aquaculture and other residential applications, such excluded fields, the Excluded Fields. In addition, Alnylam granted us an exclusive option, for each of the infectious disease siRNA programs directed to the Company’s selected targets, to obtain a worldwide, exclusive license to develop, manufacture and commercialize siRNA products directed to the target of each such program for all uses and purposes other than the Excluded Fields. 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 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. Following the Company’s exercise of an option for a program and payment of the program option exercise fee and any outstanding program costs due to Alnylam, the Company is solely responsible, at the Company’s expense (subject to Alnylam’s exercise of a profit-sharing option), for conducting all development, manufacture and commercialization activities for products arising from each such program. 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. 22 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. 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 Parent, 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. 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”). The Company will be required to pay Alnylam up to $ 190.0 million in the aggregate for the achievement of specified development and regulatory milestones by the first siRNA product directed to HBV, and up to $ 115.0 million for the achievement of specified development and regulatory milestones by the first product directed to the target of each infectious disease siRNA program for which the Company exercised its option. Following commercialization, the Company will be required to pay to Alnylam up to $ 250.0 million in the aggregate for the achievement of specified levels of net sales by siRNA products directed to HBV and up to $ 100.0 million for the achievement of specified levels of net sales by products directed to the target of each infectious disease siRNA program for which the Company exercised its option. The Company may also be required to pay Alnylam tiered royalties at percentages ranging from the low double-digits to mid-teens on annual net sales of HBV products, and tiered royalties at percentages ranging from the high single-digits to the sub-teen double-digits on annual net sales of licensed infectious disease products, in each case subject to specified reductions and offsets. 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 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. However, if Alnylam exercises its profit-sharing option for any product, the term of the Alnylam Agreement will continue until the expiration of the profit-sharing arrangement for such product. The Company may terminate the Alnylam Agreement on a program-by-program basis or in its entirety for any reason on 90 days’ written notice. 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 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. Upon completion of the Company’s IPO in October 2019, the net settlement criteria of the definition of an embedded derivative had been met for the Milestone Shares. The initial fair value of the embedded derivative was estimated to be $ 13.6 million and was charged to research and development expense in the fourth quarter of 2019. The estimated fair value of the derivative liability was $ 12.4 million as of December 31, 2019. On March 10, 2020, the Company achieved the specified development milestone relating to the Milestone Shares and was obligated to issue the Milestone Shares within 60 days of such milestone event. Consequently, the Company remeasured and reclassified the derivative liability to additional paid-in capital. The estimated fair value of the derivative liability was $ 29.2 million as of March 10, 2020. In May 2020, the Company issued Alnylam 1,111,111 shares of the Company’s common stock. In addition to these Milestone Shares, the Company was also obligated to pay Alnylam $ 15.0 million as of March 31, 2020 in connection with the achievement of the specified development milestone. 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”). 23 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. 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 COV 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 from the coronavirus program into further development, the Company will be responsible for conducting all development, manufacturing and commercialization activities for COV 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 COV Products. If the Company exercises its option for the coronavirus program, and successfully develops one or more COV 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 COV Products. 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. 24 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 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 In July 2018, the Company entered into an exclusive license agreement with The Rockefeller University (“Rockefeller”), which was amended in May 2019 (the “Rockefeller Agreement”). Pursuant to the Rockefeller Agreement, Rockefeller granted the Company a worldwide exclusive license under certain patent rights, and a worldwide non-exclusive license under certain materials and know-how covering certain antibody variants relating to a specified mutation leading to enhanced antibody function and utility, to develop, manufacture and commercialize infectious disease products covered by the licensed patents, or that involve the use or incorporation of the licensed materials and know-how, in each case for all uses and purposes for infectious diseases. The Company uses technology licensed under the Rockefeller Agreement in the Company’s antibody platform and in the Company’s product candidate VIR-3434. The Company paid Rockefeller an upfront fee of $ 0.3 million for entry into the Rockefeller Agreement, and is required to pay annual license maintenance fees of $ 1.0 million, which will be creditable against royalties following commercialization. In addition, for achievement of specified development and regulatory milestone events, the Company will be required to pay up to $ 8.5 million with respect to the first infectious disease product for the HIV indication, up to $ 7.0 million with respect to each of the first four other infectious disease products with specified projected peak worldwide annual net sales, and up to $ 3.6 million with respect to any other infectious disease product. Following regulatory approval, the Company will be required to pay commercial success milestones of up to $ 40.0 million in the aggregate for the achievement of specified aggregate worldwide annual net sales of the first infectious disease product for the HIV indication and the first four infectious disease products with specified projected peak worldwide annual net sales. The Company will also be required to pay to Rockefeller a royalty at a low single-digit percentage rate on net sales of licensed products, subject to certain adjustments. 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. 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. The Company has the right to terminate the Rockefeller Agreement in its entirety, or in part, for any reason on 60 days’ written notice to Rockefeller. Rockefeller may terminate the Rockefeller Agreement on 90 days’ written notice for the Company’s uncured material breach, or if the Company challenges the validity or enforceability of any of the licensed patents, or immediately in the event of the Company’s insolvency. 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. 25 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements MedImmune 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. The Company is developing VIR-2482 using technology licensed under the 2018 MedImmune Agreement. 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 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. 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. The Company may terminate the 2018 MedImmune Agreement in its entirety or on a product-by-product basis, for convenience, upon 120 days’ notice. Either party may terminate the 2018 MedImmune Agreement for cause for the other party’s uncured material breach on 60 days’ notice or immediately in the event of bankruptcy of the other party. 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 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. Xencor August 2019 License Agreement In August 2019, the Company entered into a patent license agreement (the “2019 Xencor Agreement”) with Xencor, Inc., (“Xencor”). 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, 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. On a product-by-product basis, the Company will also be obligated to pay tiered royalties based on net sales of licensed products in the low single-digits. 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. 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. 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. 26 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. 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 coronavirus research programs. 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. 7 . Balance Sheet Components Property and Equipment, net Property and equipment, net consists of the following: June 30, 2020 December 31, 2019 (in thousands) Laboratory equipment $ 13,811 $ 11,986 Computer equipment 556 540 Furniture and fixtures 1,404 1,351 Leasehold improvements 7,274 7,121 Construction in progress 159 142 Property and equipment, gross 23,204 21,140 Less accumulated depreciation and amortization ( 6,893 ) ( 4,832 ) Total property and equipment, net $ 16,311 $ 16,308 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 In August 2019, the Company entered into a lease agreement whereby the Company sold various laboratory instruments, furniture, and other equipment for gross proceeds of $ 1.2 million to a bank and leased them back for a five-year term, collateralized by the underlying equipment. The Company determined it did not relinquish control of the assets to the buyer-lessor. 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 June 30, 2020, the current and long-term portions of the financing obligation were $ 0.2 million and $ 0.8 million, respectively. 27 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements Accrued and Other Liabilities Accrued and other liabilities consist of the following: June 30, 2020 December 31, 2019 (in thousands) Research and development expenses $ 20,945 $ 12,530 Payroll and related expenses 6,336 9,410 Excess funds payable under grant agreements 3,820 94 Operating lease liabilities, current 3,138 — Restricted stock liability 546 1,434 Financing lease obligation, current 244 237 Other professional and consulting expenses 2,936 1,634 Other accrued expenses 595 1,156 Total accrued and other liabilities $ 38,560 $ 26,495 8 . Commitments and Contingencies Lease Agreements The Company has various lease arrangements for office and laboratory space located in California, Oregon, Missouri and Switzerland with contractual lease periods expiring between 2020 and 2028 . These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain lease agreements also provide the Company with the option to renew for additional periods ranging from one to five years . These renewal options are not considered in the remaining lease term unless it is reasonably certain that the Company will exercise such options. In addition, the Company entered into a sale-leaseback transaction in August 2019. See further discussion in Note 7—Balance Sheet Components. 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 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) June 30, 2020 June 30, 2020 Operating lease cost $ 1,141 $ 2,281 Short-term lease cost 162 317 Variable lease cost 646 1,240 Total least cost $ 1,949 $ 3,838 Other Information Weighted average remaining lease term (in years) 4.6 Weighted average incremental borrowing rate 7.7 % 28 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): Amounts 2020 (excluding the six months ended June 30, 2020) $ 2,162 2021 4,142 2022 4,210 2023 4,262 2024 2,998 Thereafter 1,058 Total lease payments 18,832 Less: imputed interest ( 2,932 ) Present value of operating lease liabilities $ 15,900 The following amounts were recorded in the condensed consolidated balance sheet as of June 30, 2020 (in thousands): Operating Leases Operating right-of-use assets $ 15,177 Accrued and other liabilities $ 3,138 Operating lease liabilities, noncurrent 12,762 Total operating lease liabilities $ 15,900 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 29 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 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 In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. 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 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. In addition, the Company has entered into indemnification agreements with its directors and certain officers that may require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. To date, no demands have been made upon the Company to provide indemnification under these agreements, and thus, there are no indemnification claims that the Company is aware of that could have a material effect on the Company’s condensed consolidated balance sheets, condensed consolidated statements of operations, or condensed consolidated statements of cash flows. 9 . Related Party Transactions As a result of the Brii Agreement in May 2018, the Company holds a minority equity interest in Brii Bio through its parent company, Brii Bio Parent. Additionally, the Company’s Chief Executive Officer and member of the board of directors as well as another member of the Company’s board of directors serve on Brii Bio Parent’s board of directors. In January 2019, the Company issued 18,202,213 shares of Series B convertible preferred stock to existing Series A-1 preferred stockholders. See further discussion in Note 10—Convertible Preferred Stock. 10 . Convertible Preferred Stock Prior to the IPO, under the Company’s amended and restated certificate of incorporation, the Company was authorized to issue two classes of shares: preferred stock and common stock. 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 net 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. Upon closing of the IPO, all of the outstanding convertible preferred stock automatically converted into 88,112,733 shares of common stock. Subsequent to the closing of the IPO, there were no shares of convertible preferred stock outstanding. 1 1 . Common Stock Warrant 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 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. Upon completion of the IPO in October 2019, the warrant automatically converted into a warrant to purchase 244,444 shares of common stock. 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. 30 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 1 2 . Stock-Based Awards Stock Option Activity Activity under the Company’s stock option plans is set forth below: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (Years) (in thousands) Outstanding at December 31, 2019 7,186,298 $ 5.25 8.5 Granted 2,926,047 $ 28.29 Exercised ( 898,624 ) $ 2.66 Forfeited ( 280,876 ) $ 7.90 Outstanding at June 30, 2020 8,932,845 $ 12.97 8.5 $ 250,157 Vested and expected to vest at June 30, 2020 8,932,845 $ 12.97 8.5 $ 250,157 Vested and exercisable at June 30, 2020 2,054,724 $ 3.18 7.7 $ 77,653 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 The fair value of stock options granted to employees was estimated on the date of grant using the Black-Scholes option-pricing model using the following assumptions: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Expected term of options (in years) 5.5 - 6.1 5.9 5.5 - 6.1 5.9 Expected stock price volatility 95.7% - 100.6% 89.4 % 88.8% - 100.6% 89.4 % Risk-free interest rate 0.4% - 0.5% 2.5 % 0.4% - 1.2% 2.5 % Expected dividend yield — — — — The valuation assumptions were determined as follows: 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 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. Risk-Free Interest Rate— The Company based the risk-free interest rate over the expected term of the options based on the constant maturity rate of U.S. Treasury securities with similar maturities as of the date of the grant. Expected Dividend Rate— The expected dividend is zero as the Company has not paid nor does it anticipate paying any dividends on its profit interest units in the foreseeable future. 31 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements Restricted Stock Activity The following table summarizes restricted stock activity: Number of Shares Weighted Average Fair Value at Date of Grant per Share Unvested as of December 31, 2019 2,075,511 $ 0.95 Vested ( 1,230,625 ) 0.92 Unvested as of June 30, 2020 844,886 $ 0.98 The shares of restricted stock have not been included in the shares issued and outstanding. In January 2017, the Company entered into a restricted stock purchase agreement with an executive officer and a restricted stock purchase agreement with a director whereby the executive officer and the director purchased an aggregate of 3,624,355 shares of restricted stock. The consideration for the restricted stock was the issuance of promissory notes which are non-recourse in nature and are accounted for as in-substance stock options. The Company measured compensation cost for these in-substance options based on their estimated fair value on the grant date using the Black-Scholes pricing model. The Company is recognizing compensation cost over the requisite service period with an offsetting credit to additional paid-in capital. 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 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 The following table sets forth the total stock-based compensation expense for all awards granted to employees and non-employees, including shares sold through the issuance of non-recourse promissory notes of which all the shares are considered to be options for accounting purposes in the Company’s consolidated statements of operations: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (in thousands) (in thousands) Research and development $ 2,700 $ 576 $ 4,188 $ 1,001 General and administrative 3,050 823 4,529 2,851 Total stock-based compensation $ 5,750 $ 1,399 $ 8,717 $ 3,852 1 3 . Net Loss Per Share As the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common securities outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows: As of June 30, 2020 2019 Convertible preferred stock — 88,112,733 Options issued and outstanding 8,932,845 5,544,976 Restricted shares subject to future vesting 844,886 4,418,767 Warrants to purchase convertible preferred stock — 244,444 Total 9,777,731 98,320,920 32 VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 1 4 . Subsequent Events 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. 33