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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-03-26 · 177 added, 116 removed, 195 unchanged (60% of the section changed)

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Our discussion and analysis below are focused on our financial results and liquidity and capital resources for the years ended December 31, 2020 and 2019, including year-over-year comparisons of our financial performance and condition for these years.

Discussion and analysis of the year ended December 31, 2017 specifically, as well as the year-over-year comparison of our financial performance and condition for the years ended December 31, 2018 and 2017, are located in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the prospectus dated October 10, 2019 that forms a part of the Company’s Registration Statement on Form S-1 (File No.

333-233604), as filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on October 11, 2019.

Discussion and analysis of the year ended December 31, 2018 specifically, as well as the year-over-year comparison of our financial performance and condition for the years ended December 31, 2019 and 2018, are located in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 26, 2020.

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

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

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

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

We believe that now is the time to apply the recent and remarkable advances in immunology to combat current and prepare for potential future infectious diseases.

Our approach begins with identifying the limitations of the immune system in combating a particular pathogen, the vulnerabilities of that pathogen and the reasons why previous approaches have failed.

We then bring to bear powerful technologies that we believe, individually or in combination, will lead to effective therapies.

Our current development pipeline consists of product candidates targeting COVID-19, hepatitis B virus, or HBV, influenza A virus, and human immunodeficiency virus, or HIV.

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

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

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

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

We are next initiating a Phase 2 trial combining VIR-2218 with pegylated interferon-alpha, an approved immune modulatory agent.

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

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

Given the global impact of infectious diseases, we are committed to developing cost-effective treatments that can be delivered at scale.

VIR-7831, a severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, -neutralizing monoclonal antibody, or mAb, started the lead-in phase of a Phase 2/3 trial named COVID-19 Monoclonal antibody Efficacy Trial - Intent to Care Early, or COMET-ICE, in August 2020 for the treatment of adults at high risk of hospitalization or death from COVID-19.

In October 2020, the trial continued into Phase 3 based on a positive evaluation of the safety and tolerability data from the Phase 2 lead-in.

Results for the primary endpoint of COMET-ICE are expected in the first quarter of 2021, and if positive, will be used to seek Emergency Use Authorization from the Food and Drug Administration and ultimately approval through the submission of a biologics license application.

In December 2020, we initiated a Phase 3 trial named Therapeutics for Inpatients with COVID-19, or TICO, of VIR-7831 for the treatment of hospitalized adults with COVID-19 as part of a new sub-trial of the National Institutes of Health’s Accelerating COVID-19 Therapeutic Interventions and Vaccines, or ACTIV, Program, specifically ACTIV-3.

An evaluation of the benefit/risk profile of VIR-7831 is expected in the first quarter of 2021 and will determine if VIR-7831 continues in the next part of the ACTIV-3 trial.

In January 2021, we initiated a Phase 2 combination trial of VIR-7831 and bamlanivimab (LY-CoV555) for the treatment of mild to moderate COVID-19 in low-risk adults as part of Eli Lilly and Company’s BLAZE-4 trial.

Initial results for this arm of the BLAZE-4 trial are expected in the first half of 2021.

In February 2021, we initiated COMET-Patient SafEty, TolerAbility, PharmacoKinetics, or COMET-PEAK, a Phase 2 trial evaluating an intramuscular, or IM, formulation of VIR-7831 in low-risk adults with mild to moderate COVID-19.

In the second quarter of 2021, we plan to initiate two additional IM trials of VIR-7831.

VIR-7832, a vaccinal SARS-CoV-2-neutralizing mAb, is anticipated to initiate a Phase 1b/2a trial in the first quarter of 2021 for the treatment of adults with mild to moderate COVID-19 at high risk of hospitalization as part of the U.K.-based and National Health Service supported AGILE initiative.

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

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

In July 2020, we initiated a Phase 2 combination clinical trial of VIR-2218 with pegylated interferon-alpha, an approved immune modulatory agent, and anticipate initial clinical data in the second quarter of 2021.

VIR-3434, an HBV-neutralizing mAb, is currently in a Phase 1 clinical trial.

We anticipate additional clinical data from our Phase 1 trial in the second quarter of 2021.

We also expect to initiate a Phase 2 clinical trial of VIR-3434 in combination with VIR-2218 in the second half of 2021.

Influenza A virus

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

Initiation of the Phase 2 trial for VIR-2482, which was delayed due to the impact of COVID-19, is now planned for the fourth quarter of 2021 with proof-of-concept results anticipated in the first half of 2022.

VIR-1111, an HIV T cell vaccine based on human cytomegalovirus, or HCMV, is currently in a Phase 1 trial.

We anticipate initial clinical data for VIR-1111 in the second half of 2021.

We were incorporated in April 2016 and commenced principal operations later that year.

To date, we have focused primarily on organizing and staffing our company, business planning, raising capital, identifying, acquiring, developing and in-licensing our technology platforms and product candidates, and conducting preclinical studies and early clinical trials.

Prior to our initial public offering, or IPO, we funded our operations to date primarily from the issuance and sale of convertible preferred stock, and to a lesser extent from revenue from grant agreements with government-sponsored and private organizations, as well as research and development services.

From our inception through December 31, 2019, we have raised aggregate net cash proceeds of $630.7 million from the sale of our convertible preferred stock.

In October 2019, we completed our IPO pursuant to which we issued 7,142,858 shares of our common stock at a price of $20.00 per share.

We received net proceeds of $126.4 million from the IPO, after deducting underwriting discounts, commissions and offering expenses.

As of December 31, 2019, we had $407.7 million in cash, cash equivalents and investments.

Based upon our current operating plan, we believe that our existing cash, cash equivalents and investments as of December 31, 2019 will enable us to fund our operating expenses and capital expenditure requirements through at least the next 12 months from the issuance date of the consolidated financial statements included elsewhere in this Form 10-K.

Prior to our initial public offering, or IPO, we funded our operations primarily from the issuance and sale of convertible preferred stock, and to a lesser extent from revenue from grant agreements with government-sponsored and private organizations, as well as research and development services.

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

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

As of December 31, 2020, we had $736.9 million in cash, cash equivalents and short-term investments.

Based upon our current operating plan, we believe that our existing cash, cash equivalents and short-term investments as of December 31, 2020 will enable us to fund our operations through at least the next 12 months from the issuance date of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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

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As of December 31, 2020, we had an accumulated deficit of $667.2 million.

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

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

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

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Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

We are currently manufacturing product candidates from three different platforms:

We are currently manufacturing product candidates from three of our platforms:

antibodies, T cells and siRNAs.

We have established our own internal chemistry, manufacturing and control, or CMC, capabilities and are working with contract development and manufacturing organizations, or CDMOs to supply our early stage product candidates in the near-term.

We have established our own internal chemistry, manufacturing and control, or CMC, capabilities and are working with contract

development and manufacturing organizations, or CDMOs , to supply our early stage product candidates in the near-term.

We have completed our internal capacity build in process development, analytical development, quality, manufacturing and supply chain.

Specifically, our San Francisco, California and Portland, Oregon facilities include laboratories that support process development, production of human cytomegalovirus, or HCMV research viral seed stock and selected quality control testing for our product candidates.

Specifically, our San Francisco, California and Portland, Oregon facilities include laboratories that support process development, production of HCMV research viral seed stock and selected quality control testing for our product candidates.

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

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

Our License, Collaboration and Grant Agreements

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

For details regarding these and other agreements, see the section titled “Business—Our Collaboration, License and Grant Agreements” and Note 6—Grant, License and Collaboration Agreements to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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

For example , for our COVID-19 program, we and our partner GSK have executed manufacturing agreements with large-scale CDMOs to support future scale-up and capacity , particularly for potential commercialization .

COVID-19 Activities

Since February 2020, we have entered into a number of collaboration agreements to accelerate the development, manufacture, and potential commercialization of therapies to treat and prevent COVID-19 and other coronaviruses.

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

Development and Commercialization

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

(collectively referred to as GSK), entered into a definitive collaboration agreement, or the GSK Agreement, pursuant to which we agreed to collaborate to research, develop and commercialize products for the prevention, treatment and prophylaxis of diseases caused by SARS-CoV-2 and potentially other coronaviruses.

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

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

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

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

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

In December 2020, we entered into a letter agreement with Alnylam to modify certain funding and governance provisions in connection with RNAi programs directed to certain specified targets directed to coronaviruses, including VIR-2703, and to modify certain rights of each party with respect to products arising from such programs.

Manufacturing

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

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

In July 2020, we assigned the WuXi Biologics Letter Agreement to GlaxoSmithKline Trading Services Limited, or GSKTSL, and GSKTSL entered into a non-exclusive Master Services Agreement for Commercial Manufacture of Drug Substance with WuXi Biologics, or the WuXi Biologics MSA, thereby superseding the WuXi Biologics Letter Agreement, and pursuant to which, among other things, WuXi Biologics will perform development and manufacturing services for clinical and commercial supply of antibody products under our SARS-CoV-2 antibody program.

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

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

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

our SARS-CoV-2 antibody program.

In July 2020, we assigned the Samsung Letter Agreement to GSKTSL , and GSKTSL entered into a Master Services Agreement with Samsung , or the Samsung MSA, thereby superseding the Samsung Letter Agreement , and pursuant to which , among other things, Samsung will perform development and manufacturing services for clinical and commercial supply of antibody products under our SARS-CoV-2 antibody program .

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

COVID-19 Business Update

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

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

As a result of these developments, in March 2020, we implemented work-from-home policies for most of our employees.

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

Although these plans are based on a phased approach consistent with local government requirements, and focused on employee safety, and contemplate returning to remote work should new restrictions be implemented, there is uncertainty regarding recent phased reopening, which may be rolled back, and restrictions re-implemented.

We are also working to provide our employees with the support they need to ensure continuity of business operations.

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

If the COVID-19 pandemic persists for an extended period of time and begins to impact essential distribution systems, we could experience disruptions to our supply chain and operations, and associated delays in the manufacturing of clinical trial supply.

For some of our clinical development programs, we are experiencing, and may continue to experience, a disruption or delay in our ability to initiate trial sites and enroll and assess patients.

For example, the initiation of the Phase 2 trial for VIR-2482, which was delayed due to the impact of COVID-19, is now planned for the fourth quarter of 2021.

In addition, we rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic.

Our Collaboration, License and Grant Agreements

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

For details regarding these and other agreements, see the section titled “Business—Our Collaboration, License and Grant Agreements” and Note 6—Grant Agreements and Note 7—Collaboration and License Agreements to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Our Acquisitions

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(i) grant revenue;

and (ii) contract revenue.

and (ii) license and contract revenue.

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

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

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

Operating Expenses

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Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

expenses related to license and collaboration agreements;

expenses related to license and collaboration agreements, and contingent consideration from business acquisitions;

personnel-related expenses, including salaries, benefits and stock-based compensation for personnel contributing to research and development activities;

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Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations.

We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential.

We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments, our ongoing assessments as to each product candidate’s commercial potential and the impact of public health epidemics, such as the COVID-19 pandemic.

In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

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General and Administrative

Our general and administrative expenses consist primarily of personnel-related expenses for personnel in executive, finance and other administrative functions, facilities and other allocated expenses, transaction costs associated related to acquisitions and other expenses for outside professional services, including legal, audit and accounting services, and insurance costs.

Our general and administrative expenses consist primarily of personnel-related expenses for personnel in executive, finance and other administrative functions, facilities and other allocated expenses, and other expenses for outside professional services, including legal, audit and accounting services, and insurance costs.

Personnel-related expenses consist of salaries, benefits and stock-based compensation.

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Other Income (Expense), Net

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

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

Upon completion of our IPO, the outstanding warrant to purchase shares of our Series A-1 convertible preferred stock automatically converted into a warrant to purchase shares of common stock and therefore, was no longer subject to remeasurement each period.

Benefit from (Provision for) Income Taxes

Benefit from income taxes consists of the partial release of the valuation allowance on net deferred tax assets triggered by the deferred tax liabilities recorded as a result of the acquisition of Statera in 2018.

Provision for income taxes in 2019 consisted of immaterial international income tax.

R esults of Operations

Provision for Income Taxes

Provision for income taxes consisted of immaterial international income tax.

Results of Operations

Comparison of Years Ended December 31, 2020 and 2019

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Grant revenue

License revenue from a related party

Contract revenue

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Interest income

Other income (expense), net

Other expense, net

Total other income (expense)

Loss before benefit from (provision for) income taxes

Benefit from (provision for) income taxes

Loss before provision for income taxes

Provision for income taxes

Total revenue was $76.4 million and $8.1 million for the years ended December 31, 2020 and 2019, respectively.

The decrease in total revenue was primarily due to the Campylo/EPEC/EAEC grant with the Bill & Melinda Gates Foundation, which expired in May 2019, and the timing of research activities under the HIV and TB grants with the Bill & Melinda Gates Foundation.

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

Research and Development Expenses

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(in thousands)

Licenses and collaborations

Licenses, collaborations and contingent consideration

Contract manufacturing

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Total research and development expenses

Research and development expenses were $ 14 8 .

5 million and $ 100.2 million for the years ended December 31 , 2019 and 2018, respectively.

This increase was primarily due to:

Research and development expenses were $302.4 million and $148.5 million for the years ended December 31, 2020 and 2019, respectively.

This increase was primarily due to the following factors:

licenses, collaborations and contingent consideration expenses increased by $74.9 million, which was primarily attributable to increases of $28.7 million related to the change in fair value of the contingent consideration from our acquisition of Humabs Biomed SA, or Humabs, $25.4 million of costs pursuant to our collaboration with GSK, $19.3 million on achievement of the first development milestone related to our Alnylam Agreement, and $10.0 million payment to Alnylam resulting from Brii Bio's exercise of its option for VIR-2218, partially offset by a $5.0 million milestone achieved in 2019 under our 2018 MedImmune Agreement and $2.8 million decrease in costs incurred under our Alnylam Agreement;

personnel-related expenses increased by $ 24.9 million , which was primarily attributable to an increase in our headcount;

other research and development expenses increased by $12.2 million, which was primarily attributable to increases of $6.7 million in external research costs, $3.7 million in the allocation of facilities costs, and $1.5 million in supplies and equipment costs to support an increase in our headcount;

clinical costs increased by $7.4 million, which was primarily attributable to the initiation of our first HBV clinical trial in November 2018 and dosing in a Phase 1/2 clinical trial for influenza A in August 2019;

licenses and collaborations expense increased by $3.8 million primarily attributable to increases of $5.4 million related to the change in fair value of the contingent consideration from our acquisition of Humabs Biomed SA, $7.7 million primarily related to our collaboration agreement, or the Alnylam Agreement, with Alnylam Pharmaceuticals, Inc., and $12.4 million related to the fair value of the derivative liability under the Alnylam Agreement.

These increases were partially offset by decreases of $14.5 million related to our acquisition of Agenovir Corporation in 2018, $5.0 million related to payments under the 2018 MedImmune Agreement, and $2.6 million related to our license agreement with Visterra, Inc., or the Visterra Agreement, which terminated in the fourth quarter of 2019.

No additional expenses were incurred pursuant to the Visterra Agreement during 2019;

contract manufacturing expenses increased by $4.7 million, which was primarily attributable to an increase of manufacturing cost related to HBV and influenza A production of clinical materials for use in our preclinical studies and clinical trials.

clinical costs increased by $21.0 million, which was primarily attributable to activities related to our VIR-7831, VIR-2218 and VIR-3434 clinical trials;

contract manufacturing expense increased by $18.8 million, which was primarily attributable to an increase of $30.2 million related to initiation of manufacturing activities and process development for our COVID-19 programs, partially offset by a decrease of $11.3 million related to the manufacturing for HBV, HIV and influenza A drug products completed in 2019;

other research and development expenses increased by $14.3 million, which was primarily attributable to increases of $5.4 million in external research costs due to increased clinical and manufacturing activities, $4.6 million in the allocation of facilities and other costs due to an increase in our headcount, and $4.3 million in supplies and equipment costs to support our programs related to COVID-19.

General and Administrative Expenses

General and administrative expenses were $70.9 million and $37.6 million for the years ended December 31, 2020 and 2019, respectively.

The increase was primarily due to an increase in personnel-related expenses related to additional headcount and professional fees.

The increase was primarily due to an increase in personnel-related expenses related to additional headcount, legal fees, external consulting and other expenses due to costs associated with operating as a public company, including additional compliance-related expenses as a result of no longer being an emerging growth company.

Interest Income

Interest income were $2.8 million and $8.5 million for the years ended December 31, 2020 and 2019, respectively.

The increase was due to higher cash, cash equivalents and short-term investment balances in 2019 compared to 2018.

Other Income (Expense), Net

We had other expense, net, of $5.1 million and $0.2 million for the years ended December 31, 2019 and 2018, respectively.

The increase in expense was primarily due to the change in fair value of the contingent consideration related to our acquisition of TomegaVax, Inc., and the revaluation of the convertible preferred stock warrant liability.

The decrease was primarily due to lower interest rates and accretion income on investment balances in 2020 compared to 2019.

Other Expense, Net

Other expense, net were $4.5 million and $5.1 million for the years ended December 31, 2020 and 2019, respectively.

The decrease was primarily due to the $2.0 million final revaluation of the convertible preferred stock warrant liability prior to the IPO, partially offset by an increase of $1.4 million in the fair value of the contingent consideration related to the TomegaVax acquisition.

Liquidity, Capital Resources and Capital Requirements

Sources of Liquidity

As of December 31, 2019, we had $407.7 million in cash, cash equivalents and investments, and an accumulated deficit of $368.5 million.

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

As of December 31, 2020, we had $736.9 million in cash, cash equivalents and short-term investments, and an accumulated deficit of $667.2 million.

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

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

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

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

In November 2020, we also entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), pursuant to which we may from time to time offer and sell shares of our common stock for an aggregate offering price of up to $300.0 million, through or to Cowen, acting as sales agent or principal.

We will pay Cowen a commission of up to 3.0% of the aggregate gross proceeds from each sale of shares, reimburse legal fees and disbursements and provide Cowen with customary indemnification and contribution rights.

As of December 31, 2020, no shares have been issued under the Sales Agreement.

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

Future Funding Requirements

Based upon our current operating plan, we believe that our existing cash, cash equivalents and investments as of December 31, 2019, will enable us to fund our operating expenses and capital expenditure requirements through at least the next 12 months from the issuance date of the consolidated financial statements included elsewhere in this Form 10-K.

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

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

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

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

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

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Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose.

In addition, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets.

If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make other important, opportunistic investments.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect.

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Financing activities

Net increase (decrease) in cash and cash equivalents and

restricted cash and cash equivalents

Net increase in cash and cash equivalents and restricted

cash and cash equivalents

Operating Activities

During the year ended December 31, 2020, net cash used in operating activities was $190.9 million.

This consisted primarily of a net loss of $298.7 million and payments on contingent consideration of $15.8 million related to the milestones achieved related to our Humabs acquisition, partially offset by a decrease in our net operating assets of $29.5 million and non-cash charges of $94.0 million.

The change in our net operating assets of $29.5 million was primarily due to an increase in accrued liabilities and other long-term liabilities by $46.6 million, which was partially offset by a decrease in deferred revenue of $7.0 million related to revenue recognized from the Bill & Melinda Gates Foundation grants, a decrease in operating lease liabilities of $3.7 million due to lease payments, and an increase of $4.5 million in prepaid expenses and other current assets primarily related to prepayment of c linical trial cost for our research and development activities.

The non-cash charges of $94.0 million primarily consisted of $38.4 million for revaluation of contingent consideration related to our Humabs acquisition, $16.8 million for the change in fair value of the derivative liability under the Alnylam Agreement, $27.6 million for stock-based compensation expense, and $4.4 million for depreciation and amortization.

During the year ended December 31, 2019, net cash used in operating activities was $129.6 million.

This consisted primarily of a net loss of $174.7 million, partially offset by a decrease in our net operating assets of $8.2 million and non-cash charges of $36.8 million.

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The non-cash charges of $36.8 million primarily consisted of $12.4 million for the fair value of the derivative liability under the Alnylam Agreement, $8.7 million for stock-based compensation expense, $8.3 million for revaluation of contingent consideration, $4.5 million for depreciation and amortization expense, and $2.0 million for revaluation of convertible preferred stock liability.

During the year ended December 31, 2018, net cash used in operating activities was $94.1 million.

This consisted primarily of a net loss of $115.9 million, partially offset by a decrease in our net operating assets of $12.5 million and non-cash charges of $9.3 million.

The decrease in our net operating assets of $12.5 million was primarily due to an increase in deferred revenue of $7.9 million related to upfront payments received from the Bill & Melinda Gates Foundation grants and increases in accounts payable, accrued liabilities and other long-term liabilities of $8.6 million as we expanded our operations, partially offset by an increase in prepaid expenses and other current assets of $4.2 million.

The non-cash charges of $9.3 million primarily consisted of $5.1 million for stock-based compensation expense and $2.8 million for depreciation and amortization expense.

Investing Activities

During the year ended December 31, 2019, cash used in investing activities was $256.2 million.

During the year ended December 31, 2020, net cash used in investing activities was $9.9 million.

This consisted primarily of purchases of investments of $403.8 million and purchases of property and equipment of $6.5 million, partially offset by $400.3 million in proceeds received from investments which matured during the period.

During the year ended December 31, 2019, net cash used in investing activities was $256.2 million.

This consisted of purchases of short and long-term investments of $643.9 million and purchases of property and equipment of $8.9 million, partially offset by $396.7 million in proceeds received from investments which matured during the period.

During the year ended December 31, 2018, cash used in investing activities was $60.4 million.

This consisted primarily of purchases of short-term investments of $123.1 million and purchases of property and equipment of $8.2 million, partially offset by $72.6 million in proceeds received from short-term investments which matured during the period.

Financing Activities

During the year ended December 31, 2019, cash provided in financing activities was $449.2 million.

This consisted primarily of net proceeds received from the issuance of our Series B convertible preferred stock of $317.3 million in January 2019, issuance of common stock upon completion of our IPO of $126.4 million in October 2019, repayment of promissory notes of $3.3 million, and financing lease obligation of $1.2 million.

During the year ended December 31, 2018, cash provided in financing activities was $25.0 million.

This consisted primarily of net proceeds received from the issuance of our Series A-1 convertible preferred stock of $14.3 million and advance cash payment of $10.1 million for the issuance of our Series B convertible preferred stock, which closed in January 2019.

During the year ended December 31, 2020, net cash provided by financing activities was $529.5 million.

This consisted primarily of proceeds received from the issuance of our common stock to GSK of $206.7 million in April 2020, the issuance of our common stock related to our follow-on offering of $323.2 million and from exercises of stock options of $4.1 million, partially offset by payments of contingent consideration related to our Humabs acquisition of $4.2 million.

During the year ended December 31 , 2019, net cash provided in financing activities was $ 449.2 million.

This consisted primarily of net proceeds received from the issuance of our Series B convertible preferred stock of $317.3 million in January 2019 , issuance of common stock upon completion of our IPO of $126.4 million in October 2019 , repayment of promissory note s of $3.3 million, and financing lease obligation of $1.2 million.

Contractual Obligations and Commitments

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We have not included any such milestone or royalty payments in the above table.

For additional information regarding these agreements, including our payment obligations thereunder, see the sections titled “Business—Our Collaboration, License and Grant Agreements” and “Business—Our Acquisition Agreements,” as well as Notes 4 and 6 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

In addition, our commitments to GSK under the Samsung MSA and WuXi Biologics MSA for drug substance, drug product and raw material were approximately $370.0 million as of December 31, 2020, excluding the approximate “access fee” payable to Biogen.

We have not included any such commitments in the above table.

For additional information regarding these agreements, including our payment obligations thereunder, see the sections titled “Business—Our Collaboration, License and Grant Agreements,” “Business—Manufacturing—Manufacturing Agreements” and “Business—Our Acquisition Agreements,” as well as Note 4—Acquisitions and Note 7—Collaboration and License Agreements to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

We enter into agreements in the normal course of business with contract manufacturing organizations and contract research organizations for clinical trials, preclinical studies, manufacturing, and other services and products for operating purposes, which are generally cancelable upon written notice.

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

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

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

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

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the JOBS Act.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We have elected to use this extended transition period to enable us to comply with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

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

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America.

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States.

The preparation of our consolidated financial statements requires us to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures.

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The critical accounting policies, estimates and judgments that we believe to have the most significant impacts to our consolidated financial statements are described below.

Revenue Recognition

License and Contract Revenue

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

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

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

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

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

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

For collaborative arrangements that fall within the scope of ASC 808, Collaborative Arrangements, or ASC 808, we first determine which elements of the collaboration are deemed to be a performance obligation with a customer within the scope of ASC 606.

For elements of collaboration arrangements that are accounted for pursuant to ASC 808 and are not subject to the guidance in ASC 606, we apply the revenue recognition model under ASC 606 or other guidance, as deemed appropriate.

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

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

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

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

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

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

Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved.

These estimates are re-assessed each reporting period as required.

These agreements may include the following types of consideration:

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

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

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

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

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

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

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

Research and Development Expenses

We expense all research and development costs in the periods in which they are incurred.

We estimate preclinical and clinical expenses based on the services performed, pursuant to contracts with research institutions that conduct and manage preclinical studies and clinical trials and research services on our behalf.

We record the costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and include these costs in accrued liabilities in the consolidated balance sheets.

However, the status and timing of actual services performed may vary from our estimates, resulting in adjustments to expense in future periods.

We estimate preclinical and clinical expenses based on the services performed, pursuant to contracts with third parties that conduct and manage preclinical studies and clinical trials, research services, and clinical manufacturing services on our behalf.

When billing terms under these contracts do not coincide with the timing of when the work is performed, we are required to make estimates of our outstanding obligations to those third parties as of period end.

Our accrual estimates are based on a number of factors, including our knowledge of the research and development programs and clinical manufacturing activities, status of the programs and activities, invoicing to date, and the provisions in the contracts.

We obtain information regarding unbilled services directly from these service providers and perform procedures to support our estimates based on our internal understanding of the services provided to date.

However, we may also be required to estimate these services based on information available to our internal clinical and manufacturing administrative staff if such information is not able to be obtained timely from our service providers.

We record the costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and include these costs in accrued and other liabilities in the

consolidated balance sheets.

The status and timing of actual services performed may vary from our estimates, resulting in adjustments to expense in future periods.

Changes in these estimates that result in material changes to our accruals could materially affect our results of operations.

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The most significant unobservable inputs are the probabilities of achieving clinical and regulatory approval of the development projects and the subsequent commercial success and discount rates.

The estimated fair value of the contingent consideration related to our acquisition of TomegaVax, Inc.

was determined based on a Monte Carlo simulation model that includes significant estimates and assumptions pertaining to probability and timing to achieve the required share price of our common stock, expected volatility and discount rate.

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

The estimated fair value of the contingent consideration related to our acquisition of TomegaVax was determined based on a Monte Carlo simulation model that includes significant estimates and assumptions pertaining to probability and timing to achieve the required share price of our common stock, expected volatility and discount rate.

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

The estimated fair value of the embedded derivative related to our Alnylam Agreement was determined based on estimates and assumptions over the likelihood and timing to achieve the specified development milestone.

Significant changes in the probabilities of the likelihood and timing to achieve the milestones would result in a significantly higher or lower fair value measurement.

We remeasured and reclassified the derivative liability to additional paid-in capital upon achievement of the milestone and settlement of the liability in 2020.

As such, the derivative liability is no longer outstanding as of December 31, 2020.

Stock-Based Compensation

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These assumptions include:

Fair Value of Common Stock —See the subsection titled “—Common Stock Valuations” below.

Expected Term —The expected term represents the period that the stock-based awards are expected to be outstanding.

Fair Value of Common Stock— For all periods prior to the IPO, because there was no public market of our common stock, the fair value of the shares of common stock underlying our share-based awards was estimated on each grant date by our board of directors.

Issued as Compensation , and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant, and factors that may have changed from the date of the most recent valuation through the date of the grant.

Following the closing of our IPO, our board of directors determined the fair market value of our common stock based on its closing price as reported on The Nasdaq Global Select Market on the date of grant.

Expected Term —The expected term represents the period that the options granted are expected to be outstanding.

We use the simplified method to determine the expected term, which is based on the average of the time-to-vesting and the contractual life of the options.

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Therefore, we used an expected dividend yield of zero.

See Note 12 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information concerning certain of the specific assumptions we used in applying the Black-Scholes option-pricing model to determine the estimated fair value of our stock options granted in the years ended December 31, 2019, 2018 and 2017.

See Note 13—Stock-Based Awards to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information concerning certain of the specific assumptions we used in applying the Black-Scholes option-pricing model to determine the estimated fair value of our stock options granted in the years ended December 31, 2020, 2019, and 2018.

Such assumptions involve inherent uncertainties and the application of significant judgment.

As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

Common Stock Valuations

For all periods prior to the IPO, because there was no public market of our common stock, the fair value of the shares of common stock underlying our share-based awards was estimated on each grant date by our board of directors.

In order to determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, input from management, valuations of our common stock prepared by unrelated third-party valuation firms in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation , and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant, and factors that may have changed from the date of the most recent valuation through the date of the grant.

These factors include, but were not limited to:

our results of operations and financial position, including our levels of available capital resources;

our stage of development and material risks related to its business;

progress of our research and development activities;

our business conditions and projections;

the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;

the lack of marketability of our common stock as a private company;

the prices at which we sold shares of our convertible preferred stock to outside investors in arms-length transactions;

the rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock;

the likelihood of achieving a liquidity event for our securityholders, such as an initial public offering or a sale of our company, given prevailing market conditions;

the hiring of key personnel and the experience of management;

trends and developments in our industry;

external market conditions affecting the life sciences and biotechnology industry sectors.

For our valuations performed prior to December 31, 2018, we used the option pricing method, or OPM, backsolve method.

In an OPM framework, the backsolve method for inferring the equity value implied by a recent financing transaction involves making assumptions for the expected time to liquidity, volatility and risk-free rate and then solving for the value of

equity such that value for the most recent financing equals the amount paid.

This method was selected as management concluded that the contemporaneous financing transaction was an arms-length transaction.

Furthermore, as of the valuation date prior to December 31, 2018, we were at an early stage of development and future liquidity events were difficult to forecast.

For our valuations performed on or subsequent to December 31, 2018, we used a hybrid method of the OPM and the Probability-Weighted Expected Return Method, or PWERM.

PWERM considers various potential liquidity outcomes.

Our approach included the use of different timing of initial public offering scenarios and a scenario assuming continued operation as a private entity.

Under the hybrid OPM and PWERM method, the per share value calculated under the OPM and PWERM are weighted based on expected exit outcomes and the quality of the information specific to each allocation methodology to arrive at a final estimated fair value per share value of the common stock before a discount for lack of marketability is applied.

In the course of preparing our consolidated financial statements with a retrospective view, we have reassessed the fair value of our common stock in the second half of 2018 and the first quarter of 2019 solely for accounting purposes.

For purposes of this determination, we assumed that the reassessed fair value of the common stock increased on a linear basis between the dates of our third-party valuation reports.

We believe that a linear interpolation is appropriate as no single event caused the valuation of our common stock to fluctuate.

Recent Accounting Pronouncements Not Yet Adopted

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

What changed 10-K

Item 7. Management’s Discussion and Analysis