Vir Biotechnology, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included as part of our Annual Report on Form 10-K for the year ended December 31, 2022. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company”, “Vir,” “we,” “us” and “our” refer to Vir Biotechnology, Inc. and its consolidated subsidiaries. Overview We are an immunology company focused on combining immunologic insights with cutting-edge technologies to treat and prevent serious infectious diseases. Infectious diseases are among the leading causes of death worldwide and can cause trillions of dollars of direct and indirect economic burden each year – as evidenced by the 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 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 pipeline consists of sotrovimab (and where marketing authorization has been granted, marketed under the brand name Xevudy ® ) and other product candidates targeting hepatitis B virus, or HBV, hepatitis D virus, or HDV, influenza A and B virus, human immunodeficiency virus, or HIV, and COVID-19. We have assembled technology platforms, focused on antibodies and T cells. We have built an industry-leading team that has deep experience in immunology, infectious diseases, and product development and commercialization. Given the global impact of infectious diseases, we are committed to developing cost-effective treatments that can be delivered at scale. We are currently manufacturing product candidates from all of our platforms. We have established our own internal process development, manufacturing and quality capabilities and are working with contract development and manufacturing organizations, or CDMOs, to supply our early- and late-stage product candidates in the near term. We continue to expand our internal capabilities and resources in process development, analytical development, quality, manufacturing and supply chain, which are supported by our San Francisco, California, and Portland, Oregon facilities that include laboratories for process development, production of human cytomegalovirus, or 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 through Phase 3 clinical trials. Material for Phase 3 clinical trials and commercial supply will generally require large-volume, low-cost-of-goods production. For example, for sotrovimab, we and our collaborator GSK have executed manufacturing agreements with CDMOs having large-scale capacity to support a potential need for a future scale-up and product supply, particularly for potential commercialization. Chronic Hepatitis B (CHB) VIR-2218 is an investigational HBV-targeting siRNA. VIR-3434 is an investigational HBV-neutralizing monoclonal antibody, or mAb, that incorporates Xencor, Inc.’s, or Xencor, Xtend TM and other Fc technologies. • Multiple trials evaluating the potential for VIR-2218 and VIR-3434 to achieve a functional cure for CHB are on track with data expected in Q4 2023. • In June 2023, we presented new data from our CHB portfolio at the EASL™ (European Association for the Study of the Liver) Congress. • In May 2023, we announced the initiation of the Phase 2 PREVAIL platform trial and our THRIVE/STRIVE sub-protocols. The platform is evaluating combinations of VIR-2218, VIR-3434 and/or PEG-IFN-α in two CHB patient populations with the potential to evaluate other populations in the future. Initial data from this platform trial are expected in the first half of 2024. 23 Table of Contents Chronic Hepatitis Delta (CHD) • The Phase 2 SOLSTICE trial evaluating VIR-2218 and VIR-3434 as monotherapy and in combination for the treatment of people living with CHD, the most aggressive form of viral hepatitis, remains on track with initial data expected in Q4 2023. • In June 2023, we presented preclinical in vivo and in vitro data demonstrating the antiviral properties of VIR-2218 and VIR-3434 against hepatitis delta virus at the EASL Congress. These data further support the clinical development of these investigational medicines as a treatment for the chronic suppression of hepatitis delta virus. Influenza VIR-2482 is an investigational mAb designed for the prevention of influenza A that incorporates Xencor’s Xtend technology. • In July 2023, we reported that the Phase 2 P rev e ntio n of I ll n es s D u e to Inf l uenza  A (PENINSULA) trial evaluating VIR-2482 for the prevention of symptomatic influenza A illness did not meet primary or secondary efficacy endpoints. • We continue to analyze the data and plan to share additional findings once available. Human Immunodeficiency Virus (HIV) VIR-1111 is an investigational HIV T cell vaccine based on HCMV. VIR-1388 is a preclinical HIV T cell vaccine based on HCMV. • We expect the Phase 1 trial for VIR-1388, a novel T cell vaccine for the prevention of HIV, to begin dosing in Q3 2023. Our T cell platform utilizes human cytomegalovirus (HCMV) as a vector, which has the potential to induce high frequencies of antigen-specific, tissue-localizing effector memory T cells. The trial will be supported by the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health, and the Bill & Melinda Gates Foundation, and will be conducted by the HIV Vaccine Trials Network. NIAID has provided funding throughout the product development lifecycle of VIR-1388. COVID-19 Sotrovimab is an investigational severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, neutralizing mAb that incorporates Xencor’s Xtend™ technology. • Sotrovimab currently has emergency authorization, temporary authorization or marketing approval (under the brand name Xevudy ® ) for early treatment of COVID-19. It has been supplied to more than 40 countries and remains in use outside of the U.S. 24 Table of Contents Preclinical Pipeline Candidates • We are continuing to advance next-generation monoclonal antibodies (mAb) based on its proprietary platform and enabled by AI and machine-learning capabilities to deliver high-quality solutions more efficiently. These include: ◦ VIR-2981, an investigational neuraminidase-targeting mAb against both influenza A and B viruses. ◦ VIR-8190, a mAb against respiratory syncytial virus (RSV) and human metapneumovirus (hMPV). ◦ VIR-7229, a next-generation COVID-19 mAb that has been shown in laboratory studies to have high potency against a broad spectrum of historical and currently circulating variants. • Additionally, we are advancing VIR-1949, a therapeutic T cell vaccine for control of precancerous lesions caused by human papilloma virus (HPV) based on our HCMV vector platform. Corporate Update • In July 2023, we made the decision to increase focus on our proprietary antibody platform and discontinue our innate immunity small molecule platform. • In June 2023, Sasha Damouni Ellis joined us as Executive Vice President and Chief Corporate Affairs Officer. Previously, she was Senior Vice President, Corporate Affairs and Investor Relations of Marinus Pharmaceuticals. • In May 2023, Jeff Calcagno, M.D., joined us as Executive Vice President and Chief Business Officer. He joined us from Johnson & Johnson (J&J), where he spent more than 12 years holding leadership roles of increasing responsibility within all three divisions of J&J Innovation (JJI), including as Global Transactions Lead for Infectious Diseases & Vaccines and as Head of JLABS Bay Area. 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 Note 4—Grant Agreements and Note 5—Collaboration and License Agreements to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, and Note 7—Collaboration and License Agreements to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission, or SEC, on February 28, 2023. Components of Operating Results Revenues To date, sotrovimab has been granted emergency authorization, temporary authorization or marketing approval (under the brand name Xevudy ® ), and has been supplied in more than 40 countries. Although we have previously recognized revenue from our profit-share under our definitive collaboration agreement with GSK executed in June 2020, or the 2020 GSK Agreement, related to sotrovimab, we may continue to incur net operating losses for at least the next several years as the extent of future revenue from the sale of sotrovimab remains uncertain. While we have an EUA from the U.S. Food and Drug Administration, or FDA, for sotrovimab, the FDA has excluded the use of sotrovimab in all U.S. regions due to the continued proportion of COVID-19 cases caused by certain Omicron subvariants. With this EUA revision, sotrovimab is not currently authorized for use in any U.S. region. Although certain countries outside the U.S. continue to maintain access to 500 mg IV while noting that the clinical efficacy is unknown or uncertain against existing and emerging Omicron variants, we cannot predict whether other countries will further limit the use of sotrovimab. Due to the evolving COVID-19 landscape and based on discussions with the FDA, we and GSK do not plan to file a Biologics License Application, or BLA, for sotrovimab at this time. In light of these developments, we cannot predict whether (if at all) or to what extent sotrovimab may be reauthorized for use by the FDA in any U.S. region in the future. In addition, we have not obtained regulatory approval for any other product candidates, and we do not expect to generate any significant revenue 25 Table of Contents from the sale of our other product candidates until we complete clinical development, submit regulatory filings and receive approvals from the applicable regulatory bodies for such product candidates, if ever. Our revenues consist of the following: Collaboration revenue includes recognition of our profit-share from the sales of sotrovimab pursuant to the 2020 GSK Agreement. Our contractual share of 72.5% from the sales of sotrovimab is applied to the net sales reported in the period by GSK, net of cost of goods sold and allowable expenses from both GSK and us (e.g., manufacturing, distribution, medical affairs, selling, and marketing expenses). In order to record collaboration revenue, we utilize certain information from our collaboration partner, including actual net product sales and costs incurred for sales activities, and make key judgments based on business updates related to commercial and clinical activities such as expected commercial demand, commercial supply plan, manufacturing commitments, risks related to expired or obsolete inventories, and risks related to potential product returns or contract terminations. Constraint on variable consideration In May 2021, the FDA granted an EUA in the U.S. for sotrovimab. In April 2022, the FDA excluded the use of sotrovimab in all U.S. regions due to the continued proportion of COVID-19 cases caused by certain Omicron subvariants. As the lead party for all manufacturing and commercialization activities, GSK incurs all of the manufacturing, sales and marketing expenses and is the principal on sales transactions with third parties. Our accounting policy related to the profit-share is to consider the agreed-upon share of the profit-sharing amounts each quarter and evaluate whether those amounts are subject to potential future adjustments based on the latest available facts and circumstances, subject to the terms of the 2020 GSK Agreement. As we are the agent under the 2020 GSK Agreement, we recognize our contractual share of the profit-sharing amounts or royalties (in case of an opt-out) as revenue, based on sales net of various estimated deductions such as rebates, discounts, chargebacks, credits and returns, less cost of sales and allowable expenses (including manufacturing, distribution, medical affairs, selling, and marketing expenses) in the period the sale occurs. Manufacturing costs include inventory revaluation adjustments, lower of cost or market inventory adjustments, inventory write-downs and write-offs, and binding purchase commitments with a third-party manufacturer, among other manufacturing costs. Our contractual share of the profit-sharing amounts is subject to potential future adjustments to allowable expenses, which we account for as a form of variable consideration. GSK holds certain potentially excess binding supply manufacturing commitments of sotrovimab and reserved certain binding manufacturing capacity potentially not expected to be utilized, which have not yet been fully reported to us as allowable manufacturing expenses for the cumulative profit-sharing amounts to date. We expect GSK to adjust allowable manufacturing expenses for our share of the potential charge for excess supply write-offs and unused binding manufacturing capacity and report to us as cost-sharing amounts in future periods. We evaluate the latest available facts and circumstances to update our evaluation of whether any portion of profit-sharing amounts should continue to be constrained. We re-assess these estimates at each reporting period. Actual results could materially differ from this estimate. Contract revenue includes recognition of revenue generated from research and development services under third-party contracts, and from a third-party clinical supply agreement. Grant revenue is comprised of revenue derived from grant agreements with government-sponsored and private organizations. Operating Expenses Cost of Revenue Cost of revenue currently represents royalties earned by third-party licensors on net sales of sotrovimab by us or our collaborators. We recognize these royalties as cost of revenue when we recognize the corresponding revenue that gives rise to payments due to our licensors. Research and Development To date, our research and development expenses have related primarily to discovery efforts and preclinical and clinical development of our product candidates. Research and development expenses are recognized as incurred and 26 Table of Contents payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. We do not track all research and development expenses by product candidate. Research and development expenses consist primarily of costs incurred for our product candidates in development and prior to regulatory approval, which include: • expenses related to license and collaboration agreements, and change in fair value of certain contingent consideration obligations arising from business acquisitions; • personnel-related expenses, including salaries, benefits and stock-based compensation for personnel contributing to research and development activities; • expenses incurred under agreements with third-party contract manufacturing organizations, contract research organizations, and consultants; • clinical costs, including laboratory supplies and costs related to compliance with regulatory requirements; and • other allocated expenses, including expenses for rent and facilities maintenance, and depreciation and amortization. We expect our research and development expenses to increase substantially in absolute dollars for the foreseeable future as we advance our product candidates into and through preclinical studies and clinical trials and pursue regulatory approval of our product candidates. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates may be affected by a variety of factors including: the safety and efficacy of our product candidates, early clinical data, investment in our clinical programs, the ability of collaborators to successfully develop our licensed product candidates, competition, manufacturing capability and commercial viability. To date, sotrovimab has been granted emergency authorization, temporary authorization or marketing approval (under the brand name Xevudy ® ), and has been supplied in more than 40 countries. While we have an EUA from the FDA for sotrovimab, the FDA has excluded the use of sotrovimab in all U.S. regions due to the continued proportion of COVID-19 cases caused by certain Omicron subvariants. With this EUA revision, sotrovimab is not currently authorized for use in any U.S. region, and we cannot predict whether (if at all) or to what extent sotrovimab may be reauthorized for use by the FDA in any U.S. region in the future. In addition, due to the evolving COVID-19 landscape and based on discussions with the FDA, we and GSK do not plan to file a BLA for sotrovimab at this time. Although certain countries outside the U.S. continue to maintain access to 500 mg IV while noting that the clinical efficacy is unknown or uncertain against existing and emerging Omicron variants, we cannot predict whether other countries will further limit the use of sotrovimab. Furthermore, COVID-19 treatment standards are susceptible to rapid changes in epidemiology and the emergence of new variants or subvariants, which may render sotrovimab inferior or obsolete in the future. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate significant revenue from the commercialization and sale of any of our product candidates. 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, 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, our existing collaborators have significant discretion in determining the efforts and resources that they will apply to our collaborations and may not pursue further development and commercialization of products resulting from our collaboration arrangements or may elect to not to continue or renew research and development programs, which would delay the development and may increase the cost of developing our product candidates and may result in a need for additional capital or a suitable replacement collaborator. For those product candidates where there is not a current collaboration arrangement in place, 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. Our clinical development costs may vary significantly based on factors such as: • whether a collaborator is paying for some or all of the costs; • per patient trial costs; 27 Table of Contents • the number of trials required for approval; • the number of sites included in the trials; • enrollment and retention of patients in trials in countries disrupted by geopolitical events, including civil or political unrest; • the length of time required to enroll eligible patients; • the number of patients that participate in the trials; • the number of doses that patients receive; • the drop-out or discontinuation rates of patients; • potential additional safety monitoring requested by regulatory agencies; • the duration of patient participation in the trials and follow-up; • the cost and timing of manufacturing our product candidates; • the phase of development of our product candidates; and • the efficacy and safety profile of our product candidates. Selling, General and Administrative Our selling, general and administrative expenses consist primarily of personnel-related expenses for personnel in executive, finance and other administrative functions, facilities and other allocated expenses, other expenses for outside professional services, including legal, audit and accounting services, insurance costs and change in fair value of certain contingent consideration obligations arising from business acquisitions. Personnel-related expenses consist of salaries, benefits and stock-based compensation. We expect our selling, general and administrative expenses to increase substantially in absolute dollars in the foreseeable future as we continue to support our research and development activities, and commercialization activities for any of our product candidates, if approved, and to grow our business. We also anticipate incurring additional expenses associated with operating as a public company, including increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with the rules and regulations of the SEC and standards applicable to companies listed on a national securities exchange, additional insurance expenses, investor relations activities and other administrative and professional services. Change in Fair Value of Equity Investments Change in fair value of equity investments consists of the remeasurement of our investment in Brii Biosciences Limited’s, or Brii Bio Parent, ordinary shares based on the quoted market price at each reporting date. Interest Income Interest income consists of interest earned on our cash, cash equivalents and investments. Other (Expense) Income, Net Other (expense) income, net consists of gains and losses from foreign currency transactions and the remeasurement of our contingent consideration obligation. Benefit from (Provision for) Income Taxes Benefit from (provision for) income taxes consists primarily of income taxes on our domestic and foreign operations. Net Loss Attributable to Noncontrolling Interest Net loss attributable to noncontrolling interest consists of net loss attributable to the noncontrolling interest owners of Encentrio Therapeutics, Inc., our subsidiary, during the three months ended March 31, 2023. 28 Table of Contents Results of Operations Comparison of the Three and Six Months Ended June 30, 2023 and 2022 The following table summarizes our results of operations for the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 Change 2023 2022 Change (in thousands) Revenues: Collaboration revenue $ (13,779) $ (54,941) $ 41,162 $ 32,795 $ 1,174,715 $ (1,141,920) Contract revenue 1,057 12,254 (11,197) 1,195 12,536 (11,341) Grant revenue 16,519 2,058 14,461 32,764 4,579 28,185 Total revenues 3,797 (40,629) 44,426 66,754 1,191,830 (1,125,076) Operating expenses: Cost of revenue 22 27,921 (27,899) 1,929 118,070 (116,141) Research and development 171,860 115,082 56,778 329,503 205,309 124,194 Selling, general and administrative 47,101 41,590 5,511 93,879 79,845 14,034 Total operating expenses 218,983 184,593 34,390 425,311 403,224 22,087 (Loss) income from operations (215,186) (225,222) 10,036 (358,557) 788,606 (1,147,163) Other income (expense): Change in fair value of equity investments (5,086) (11,390) 6,304 (18,189) (106,429) 88,240 Interest income 23,016 2,200 20,816 44,323 2,588 41,735 Other (expense) income, net (367) 691 (1,058) (8,388) 3,421 (11,809) Total other income (expense) 17,563 (8,499) 26,062 17,746 (100,420) 118,166 (Loss) income before benefit from (provision for) income taxes (197,623) (233,721) 36,098 (340,811) 688,186 (1,028,997) Benefit from (provision for) income taxes 2,848 157,228 (154,380) 5,080 (246,058) 251,138 Net (loss) income $ (194,775) $ (76,493) $ (118,282) $ (335,731) $ 442,128 $ (777,859) Net loss attributable to noncontrolling interest $ — $ — $ — $ (56) $ — $ (56) Net (loss) income attributable to Vir $ (194,775) $ (76,493) $ (118,282) $ (335,675) $ 442,128 $ (777,803) Revenues Collaboration revenue for the three months ended June 30, 2023 was $(13.8) million, compared to $(54.9) million for the same period in 2022. The change was primarily due to lower profit-sharing amount constrained under the 2020 GSK Agreement, partially offset by lower profit-sharing amount. Collaboration revenue for the three months ended June 30, 2023 consisted of $(8.4) million of profit-sharing amount from the sale of sotrovimab under the 2020 GSK Agreement and $(5.4) million of profit-sharing amount constrained. Our contractual share of 72.5% from the sales of sotrovimab is applied to the profit-sharing amounts, based on sales net of various estimated deductions such as rebates, discounts, chargebacks, credits and returns, less cost of sales and allowable expenses (including manufacturing, distribution, medical affairs, selling, and marketing expenses) in the period the sale occurs. The $(5.4) million profit-sharing amount constrained was primarily driven by unfavorable changes in excess manufacturing commitments of sotrovimab. The decrease in collaboration revenue for the six months ended June 30, 2023 compared to the same period in 2022 was primarily due to a lower profit-sharing amount from sales of sotrovimab as part of the 2020 GSK Agreement. Collaboration revenue for the six months ended June 30, 2023 consisted of $(1.2) million of profit-sharing amount from the sale of sotrovimab under the 2020 GSK Agreement and $34.0 million release of profit-sharing amount previously constrained. The $34.0 million release of profit-sharing constraint was primarily driven by a $34.1 million decrease in excess manufacturing commitments of sotrovimab, partially offset by $0.1 million of other unfavorable changes in estimate under the profit-sharing constraint. 29 Table of Contents The decrease in contract revenue for the three and six months ended June 30, 2023 compared to the same periods in 2022 was primarily due to $7.0 million related to the additional license granted to GSK applicable in mainland China, Hong Kong, Macau and Taiwan upon execution of the Amendment No. 1 to the 2020 GSK Agreement in the second quarter of 2022. The increase in grant revenue for the three and six months ended June 30, 2023 compared to the same periods in 2022 was primarily due to $11.8 million and $26.1 million for the three and six months ended June 30, 2023, respectively, in accordance with our agreement with BARDA. Cost of Revenue The decrease in cost of revenue for the three and six months ended June 30, 2023 compared to the same periods in 2022 was primarily due to lower third-party royalties owed based on the sales of sotrovimab under the 2020 GSK Agreement. Research and Development Expenses The following table shows the primary components of our research and development expenses for the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 Change 2023 2022 Change (in thousands) Licenses, collaborations and contingent consideration $ 7,551 $ 27,907 $ (20,356) $ 15,297 $ 35,063 $ (19,766) Personnel 50,089 39,112 10,977 94,033 77,846 16,187 Contract manufacturing 28,242 9,232 19,010 65,795 16,558 49,237 Clinical costs 43,881 15,224 28,657 83,719 31,903 51,816 Other 42,097 23,607 18,490 70,659 43,939 26,720 Total research and development expenses $ 171,860 $ 115,082 $ 56,778 $ 329,503 $ 205,309 $ 124,194 The increase in research and development expenses for the three and six months ended June 30, 2023 compared to the same periods in 2022 was primarily due to the following factors: • the increase in clinical costs was primarily attributable to the Company's Phase 2 PENINSULA trial evaluating VIR-2482 for the prevention of symptomatic influenza A illness; • the increase in contract manufacturing expenses was primarily related to an increase in manufacturing activities in preparation for potential Phase 3 studies involving VIR-2482 and, to a lesser extent, VIR-2218 and VIR-3434; • the increase in personnel-related expenses was primarily attributable to an increase in our personnel to support the advancement of our clinical programs; and • the increase in other research and development expenses was primarily attributable to the allocation of facilities, including depreciation, and other costs due to an increase in our personnel and a non-recurring impairment charge associated with certain non-prioritized in-process research and development assets. partially offset by • the decrease in licenses, collaborations and contingent consideration expenses primarily attributable to the change in fair value of the contingent consideration from our acquisition of Humabs BioMed SA, or Humabs, and $7.0 million recognized in the same period of 2022 in connection with the termination of our development and manufacturing collaboration agreement with WuXi Biologics (Hong Kong) Limited, or WuXi Biologics. 30 Table of Contents Selling, General and Administrative Expenses The increase in selling, general and administrative expenses for the three and six months ended June 30, 2023 compared to the same periods in 2022 was primarily due to higher personnel-related costs to support the growth of the Company. Change in Fair Value of Equity Investments In July 2021, Brii Bio Parent became a publicly traded company on the Stock Exchange of Hong Kong Limited. In connection with the initial public offering, our investment in shares of Brii Bio Parent became a marketable equity investment and subsequently remeasured to fair value at each reporting period. For the three and six months ended June 30, 2023, we recognized an unrealized loss of $5.1 million and $18.2 million, respectively, due to the change in fair value, compared to an unrealized loss of $11.4 million and $106.4 million, respectively, for the same periods in 2022. Interest Income The increase in interest income for the three and six months ended June 30, 2023 was primarily due to higher interest rates as well as higher balances of short-term and long-term investments compared to the same periods in 2022. Other (Expense) Income, Net The decrease in other (expense) income, net for the three and six months ended June 30, 2023 compared to the same periods in 2022 was primarily due to loss from foreign exchange measurement related to the accrued liability recognized in connection with the profit-sharing amount constrained under the 2020 GSK Agreement. Benefit from (Provision for) Income Taxes The decrease in benefit from income taxes for the three months ended June 30, 2023 compared to the same period in 2022 was primarily due to the Company's ability to realize a tax benefit associated with the net loss and changes to valuation allowances on deferred tax assets for the three months ended June 30, 2022. The benefit from income taxes for the three months ended June 30, 2023 was primarily due to a pre-tax loss and our ability to carry-back the research and development credit to 2022. The benefit from income taxes for the six months ended June 30, 2023 was primarily due to a pre-tax loss and our ability to carry-back the research and development credit to 2022. The provision for income taxes for the six months ended June 30, 2022 was primarily due to taxable income for 2022 attributable to significant collaboration revenue from the sale of sotrovimab. Liquidity, Capital Resources and Capital Requirements Sources of Liquidity To date, we have financed our operations primarily through sales of our equity securities and payments received under our grant and collaboration agreements. As of June 30, 2023, we had $1.9 billion in cash, cash equivalents, and investments. As of June 30, 2023, we had retained earnings of $41.6 million. We entered into a sales agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, in 2020 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% 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 June 30, 2023, no shares have been sold under the Sales Agreement, which will expire in November 2023. Funding Requirements and Commitments 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 clinical trials, and to a lesser extent, selling, general and administrative expenditures. 31 Table of Contents We have not obtained regulatory approval for any product candidates other than sotrovimab, and we do not expect to generate significant revenue from the sale of our other product candidates until we complete clinical development, submit regulatory filings and receive approvals from the applicable regulatory bodies for such product candidates, if ever. We may continue to incur net losses for the foreseeable future. Based upon our current operating plan, we believe that our existing cash, cash equivalents and investments as of June 30, 2023 as noted above will enable us to fund our operations for at least the next 12 months. However, our operating plan may change as a result of many factors currently unknown to us, and we may 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 expect to finance our cash needs through public or private equity or debt financings, third-party (including government) funding and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. See the sections titled “Risk Factors—Risks Related to Our Financial Position and Capital Needs—Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our product candidates.” and Risk Factors—Risks Related to Our Financial Position and Capital Needs—We may require substantial additional funding to finance our operations. If we are unable to raise capital when needed, we could be forced to delay, reduce or terminate certain of our development programs or other operations” for a description of the risks that may be associated with any future capital raises. 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. Because of the numerous risks and uncertainties associated with research, development and commercialization of biotechnology products, we are unable to estimate the exact amount of our operating capital requirements. See the section titled “Risk Factors—Risks Related to Our Financial Position and Capital Needs” for a description of certain risks that will affect our future capital requirements. We have various operating lease arrangements for office and laboratory spaces located in California, Oregon, Missouri and Switzerland with contractual lease periods expiring between 2022 and 2033. As of June 30, 2023, we expect to make total lease payments o f $166.8 million throu gh 2033. To date, we have entered into collaboration, license and acquisition agreements where the payment obligations are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones, and we are required to make royalty payments in connection with the sale of products developed under those agreements. For additional information regarding these agreements, including our payment obligations thereunder, see Note 5—Collaboration and License Agreements to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, and Note 7—Collaboration and License Agreements to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023. For information related to our future commitments under our facilities and manufacturing agreements. see Note 9—Commitments and Contingencies to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023. In December 2022, we and a third-party contract development manufacturing organization (the "CDMO") entered into a master service agreement, and subsequently various scopes of work with respect to manufacturing of VIR-2482 (collectively, "VIR-2482 Agreements"). As of June 30, 2023, we have a balance of unpaid noncancellable commitments under the VIR-2482 Agreements up to approximately $36 million in an aggregate. We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements. 32 Table of Contents Cash Flows The following table summarizes our cash flows for the periods indicated: Six Months Ended June 30, 2023 2022 (in thousands) Net cash (used in) provided by: Operating activities $ (515,029) $ 1,510,225 Investing activities 328,394 (377,721) Financing activities 5,523 30,765 Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents $ (181,112) $ 1,163,269 Operating Activities During the six months ended June 30, 2023, net cash used in operating activities was $515.0 million. This consisted primarily of a net loss of $335.7 million, partially offset by non-cash charges of $62.9 million, and an increase in our net operating assets of $242.2 million. The non-cash charges of $62.9 million primarily consisted of $56.1 million for stock-based compensation expense and an unrealized loss of $18.2 million on our equity investment, partially offset by $26.3 million related to a change in estimated profit-sharing constraint from the 2020 GSK Agreement. The change in our net operating assets of $242.2 million was primarily due to a $269.8 million decrease in accrued liabilities and other long-term liabilities due to partial settlement of profit-sharing constraint. During the six months ended June 30, 2022, net cash provided by operating activities was $1.5 billion. This consisted primarily of net income of $442.1 million, non-cash charges of $477.5 million, and a decrease in our net operating assets of $590.5 million. The change in our net operating assets of $590.5 million was primarily due to a decrease in collaboration receivable by $433.7 million resulting from our profit share from the sale of sotrovimab, an increase in accrued liabilities and other long-term liabilities by $145.4 million due to timing of payments and an increase in deferred revenue by $15.6 million primarily driven by the grants received from Bill & Melinda Gates Foundation. The non-cash charges of $477.5 million primarily consisted of $397.4 million for change in estimated constraint on profit-sharing amount, an unrealized loss of $106.4 million on our equity investment, $52.4 million for stock-based compensation expense, $5.6 million for revaluation of contingent consideration, $4.3 million for noncash lease expense and $2.9 million for depreciation and amortization expense, partially offset by $93.8 million for payment for contingent consideration in excess of acquisition date fair value. Investing Activities During the six months ended June 30, 2023, net cash provided by investing activities was $328.4 million. This consisted primarily of $1.0 billion in proceeds received from investments that matured during the period, partially offset by purchases of investments of $694.3 million and property and equipment of $16.3 million. During the six months ended June 30, 2022, net cash used in investing activities was $377.7 million. This consisted primarily of purchases of investments of $341.3 million and property and equipment of $36.4 million. Financing Activities During the six months ended June 30, 2023, net cash provided by financing activities was $5.5 million. This consisted primarily of proceeds from exercises of stock options of $3.1 million and from the issuance of common stock under our employee stock purchase plan of $2.6 million. During the six months ended June 30, 2022, net cash provided by financing activities was $30.8 million. This consisted primarily of proceeds from the issuance of our common stock to the Bill & Melinda Gates Foundation of $28.5 million under the stock purchase agreement, from the issuance of common stock under our employee stock purchase plan of $2.1 million, and from exercises of stock options of $1.6 million, partially offset by $1.2 million for payment of contingent consideration. 33 Table of Contents Critical Accounting Policies and Estimates Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our unaudited condensed 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. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. There have been no significant changes in our critical accounting policies during the six months ended June 30, 2023, as compared with those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023.