What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-03 compared with 2023-08-04 · 111 added, 105 removed, 191 unchanged (53% of the section changed)

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and its consolidated subsidiaries.

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.

We are an immunology company focused on combining cutting-edge technologies to treat and prevent serious infectious diseases and other serious conditions.

Infectious diseases are among the leading causes of death worldwide and can cause 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 advances in immunology to combat current and prepare for future infectious disease threats.

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.

Our current clinical development pipeline consists of product candidates targeting hepatitis B virus, or HBV, hepatitis delta virus, or HDV and human immunodeficiency virus, or HIV.

We also have several preclinical candidates in our pipeline, including those targeting influenza A and B, COVID-19, respiratory syncytial virus and human metapneumovirus, or RSV and MPV, respectively, and human papillomavirus, or HPV.

We have assembled two technology platforms that are designed to stimulate and enhance the immune system by exploiting observations of natural immune processes and 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 and other serious conditions, we are committed to developing cost-effective treatments that can be delivered at scale.

We manufacture product candidates from our technology platforms.

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.

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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)

Significant Developments

Following is a summary of selected significant developments affecting our business that occurred since the filing of our Quarterly Report on Form 10-Q for the period ended June 30, 2023 .

Chronic Hepatitis B (CHB) & Chronic Hepatitis Delta (CHD)

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.

• Phase 2 MARCH Part B 24-week End of Treatment data for VIR-3434 and VIR-2218 with and without peginterferon alpha in chronic hepatitis B and initial data from the Phase 2 SOLSTICE trial evaluating VIR-3434 and VIR-2218 as monotherapy and in combination for the once or twice monthly chronic treatment of people living with CHD to be presented at the American Association for the Study of Liver Diseases (“AASLD”) on November 13, 2023.

• The Phase 2 PREVAIL platform trial and its THRIVE/STRIVE sub-protocols are ongoing.

The platform is evaluating combinations of VIR-3434, VIR-2218 and/or peginterferon alpha 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.

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.

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-1388 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.

• In September 2023, we announced the initiation of the Phase 1 trial of VIR-1388, an investigational novel T cell vaccine for the prevention of HIV.

◦ The trial is supported by the National Institute of Allergy and Infectious Diseases, part of the National Institutes of Health, and the Bill & Melinda Gates Foundation, and is being conducted by the HIV Vaccine Trials Network.

◦ Initial data from the trial is expected in the second half of 2024.

VIR-7229 is an investigational severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, neutralizing mAb that incorporates Xencor’s Xtend ™ technology .

Sotrovimab is an investigational severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, neutralizing mAb that incorporates Xencor’s Xtend™ technology.

• In October 2023, we announced we were awarded approximately $50 million in new funding from the Biomedical Advanced Research and Development Authority (“BARDA”), part of the Administration for Strategic Preparedness and Response within the U.S.

Department of Health and Human Services (“HHS”).

◦ $40 million of the total funds is part of Project NextGen, the Biden administration's program to accelerate the development of next-generation COVD-19 vaccines and treatments, and will support the development of VIR-7229 through Phase 1.

It also supports developing alternative mAb delivery technologies, including RNA-delivered mAbs.

We expect to initiate a Phase 1 clinical trial in 2024 and are exploring partner opportunities for post phase 1 development.

The Phase 1 trial is expected to be completed in the second half of 2025.

◦ $10 million of the total funds will support the discovery of new mAbs against a second pathogen of pandemic potential in the context of further advancing alternative mAb delivery technologies.

This effort is receiving support from BARDA's Division of Chemical, Biological, Radiological and Nuclear Medical Countermeasures.

• On August 30 2023, Nature published in vivo research findings that showed the role effector function plays in sotrovimab’s ability to activate the immune system and clear SARS-CoV-2.

• 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.

VIR-2482 is an investigational mAb designed for the prevention of influenza A that incorporates Xencor’s Xtend™ technology.

• The full analysis of data from the Phase 2 PENINSULA trial is expected in Q1 2024.

Initial post-hoc analyses have yielded the following conclusions:

◦ VIR-2482’s ability to reduce cases of symptomatic flu improves to 57% for the 1,200 mg dose when the case definition (how symptomatic is defined) includes fever.

◦ This relative risk reduction increases further to 65% when excluding the confirmed flu cases that occurred within a few days of dosing.

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:

• We are continuing to advance next-generation mAbs based on our proprietary platform and enabled by artificial intelligence (“AI”) and machine-learning to deliver high-quality drug

candidates more efficiently.

We expect the filing of multiple n ew investigational new drugs (“ INDs ” ) in the next 12-24 months, including:

◦ 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.

◦ VIR-8190, an investigational mAb against respiratory syncytial virus ( “ RSV ” ) and human metapneumovirus.

◦ VIR-1949, an investigational therapeutic T cell vaccine based on our HCMV vector platform that is designed to treat precancerous lesions caused by human papillomavirus.

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.

• In October 2023, we announced the appointment of Jennifer Towne, Ph.D., as Executive Vice President and Chief Scientific Officer, effective November 6, 2023.

Towne joins us from The Janssen Pharmaceutical Companies of Johnson & Johnson, where she spent nine years holding immunology research leadership roles of increasing responsibility within Research and Development.

Prior to Janssen, Dr.

Towne held a variety of scientific roles during her 13 years at Amgen.

During the course of her career, Dr.

Towne led the development of 16 drug candidates from preclinical research to IND and early clinical development.

Our Collaboration, License and Grant Agreements

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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.

Although we have previously recognized revenue from our profit-share related to sotrovimab under our definitive collaboration agreement with GSK executed in June 2020, or the 2020 GSK Agreement, 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.

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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

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.

In addition, we have not obtained regulatory approval for any other product candidates, and we do not expect to generate any 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.

Our revenues consist of the following:

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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.

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

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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.

In 2023, GSK reported to us certain allowable manufacturing expenses related to excess sotrovimab supply and binding reserved manufacturing capacity not utilized, which we had previously reserved as constraint on our cumulative profit-sharing amounts.

GSK may continue to adjust allowable manufacturing expenses for our share of the 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.

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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

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.

Research and development expenses are recognized as incurred and 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.

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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.

Other Income (Expense), Net

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

Benefit from (Provision for) Income Taxes

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Results of Operations

Comparison of the Three and Six Months Ended June 30, 2023 and 2022

Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 Change 2023 2022 Change

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Contract revenue 289 39,998 (39,709) 1,484 52,534 (51,050)

License revenue from a related party — 22,289 (22,289) — 22,289 (22,289)

Grant revenue 6,737 3,125 3,612 39,501 7,704 31,797

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Interest income 21,931 9,332 12,599 66,254 11,920 54,334

Other (expense) income, net (367) 691 (1,058) (8,388) 3,421 (11,809)

Other income (expense), net 882 27,026 (26,144) (7,506) 30,447 (37,953)

Total other income (expense) 20,106 22,768 (2,662) 37,852 (77,652) 115,504

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Net (loss) income attributable to Vir $ (163,413) $ 175,312 $ (338,725) $ (499,088) $ 617,440 $ (1,116,528)

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.

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.

The decrease in collaboration revenue for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily due to lower profit-sharing amounts from sales of sotrovimab as part of the 2020 GSK Agreement.

Collaboration revenue for the three months ended September 30, 2023 consisted of $6.0 million negative revenue due to profit-sharing loss from the sale of sotrovimab under the 2020 GSK Agreement partially offset by $1.7 million release of profit-sharing amount previously constrained.

Collaboration revenue for the nine months ended September 30, 2023 consisted of $7.2 million negative revenue due to profit-sharing loss from the sale of sotrovimab under the 2020 GSK Agreement partially offset by $35.6 million release of profit-sharing amount previously constrained.

The release of profit-sharing constraint was primarily driven by favorable changes in excess manufacturing commitments of sotrovimab.

The decrease in contract revenue for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily due to $39.8 million of revenue recognized for the GSK's selection of RSV as a first pathogen under the 2021 GSK Agreement during the third quarter of 2022.

The decrease in license revenue from a related party for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was due to certain revenues recognized under the collaboration with Brii Bio Parent in the third quarter of 2022.

The increase in grant revenue for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily due to $2.9 million and $29.0 million for the three and nine months ended September 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.

The decrease in cost of revenue for the three and nine months ended September 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

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 Change 2023 2022 Change

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Total research and development expenses $ 148,253 $ 114,166 $ 34,087 $ 477,756 $ 319,475 $ 158,281

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;

• 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.

The increase in research and development expenses for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily due to the following factors:

• the increase in personnel-related expenses was primarily attributable to supporting the advancement of our clinical programs;

• the increase in contract manufacturing expenses was primarily related to the cancellation of preparation costs of Phase 3 studies involving VIR-2482 and, to a lesser extent, VIR-2218, VIR-3434, and VIR-7229.

VIR-2482 manufacturing cancellation costs for phase 3 activities were $21.9 million in the third quarter of 2023;

• 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 and, to a lesser extent, the advancement of the Company's Phase 2 clinical trials evaluating the potential for VIR-2218 and VIR-3434 for treatment of chronic hepatitis B and chronic hepatitis delta, partially offset by lower costs associated with clinical trials for sotrovimab;

• 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 an impairment charge in the third quarter of 2023 associated with certain equipment used in the small molecule platform that was discontinued.

The increase in other research and development expenses for the nine months ended September 30, 2023 was also partially attributable to an impairment charge associated with certain non-prioritized in-process research and development assets in the second quarter of 2023.

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.

• the decrease in licenses, collaborations and contingent consideration expenses primarily attributable to the lower expenses associated with the change in fair value of the contingent consideration obligation from our acquisition of Humabs Biomed SA, and lower costs under our collaboration arrangements with GSK and other R&D collaborators.

The decrease in licenses, collaborations and contingent consideration expenses for the nine months ended September 30, 2023 was also attributable to $7.0 million expenses recognized in the second quarter of 2022 in

connection with the termination of our development and manufacturing collaboration agreement with WuXi Biologics (Hong Kong) Limited.

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.

The selling, general and administrative expenses for the three months ended September 30, 2023 remained flat compared to the same period in 2022.

The increase in selling, general and administrative expenses for the nine months ended September 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.

Our investment consisted solely of shares of Brii Bio Parent is a marketable equity investment and remeasured to fair value at each reporting period.

For the three and nine months ended September 30, 2023, we recognized an unrealized loss of $2.7 million and $20.9 million, respectively, due to the change in fair value, compared to an unrealized loss of $13.6 million and $120.0 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.

The increase in interest income for the three and nine months ended September 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 Income (Expense), Net

The decrease in other income (expense), net for the three and nine months ended September 30, 2023 compared to the same periods in 2022 was primarily due to decrease in foreign exchange measurement gain 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.

The benefit from income taxes for the three and nine months ended September 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 three and nine months ended September 30, 2022 was primarily due to taxable income for 2022 attributable to significant collaboration revenue from the sales of sotrovimab.

Liquidity, Capital Resources and Capital Requirements

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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.

As of September 30, 2023, we had $1.7 billion in cash, cash equivalents, and investments.

As of September 30, 2023, we had accumulated deficit of $121.9 million.

We entered into a sales agreement, or the Sales Agreement, with Cowen and Company, LLC, or TD 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 TD Cowen, acting as sales agent or principal.

We will pay TD Cowen a commission of up to 3% of the aggregate gross proceeds from each sale of shares, reimburse legal fees and disbursements and provide TD Cowen with customary indemnification and contribution rights.

As of September 30, 2023, no shares have been sold under the Sales Agreement, which will expire in November 2023.

We are in the process of signing a new sales agreement with TD Cowen which is expected to be completed during the fourth quarter of 2023 before the Sales Agreement expires.

Funding Requirements and Commitments

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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.

Based upon our current operating plan, we believe that our existing cash, cash equivalents and investments as of September 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.

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We have various operating lease arrangements for office and laboratory spaces located in California, Oregon, Missouri and Switzerland with contractual lease periods expiring between 2024 and 2033.

As of June 30, 2023, we expect to make total lease payments o f $166.8 million throu gh 2033.

As of September 30, 2023, we expect to make total lease payments o f $161.1 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.

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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.

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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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.

During the nine months ended September 30, 2023, net cash used in operating activities was $670.9 million.

This consisted primarily of a net loss of $499.1 million, an increase in our net operating assets of $271.8 million, partially offset by non-cash charges of $100.1 million.

The non-cash charges of $100.1 million primarily consisted of $83.0 million for stock-based compensation expense and an unrealized loss of $20.9 million on our equity investment, partially offset by $28.1 million gain related to a change in estimated profit-sharing constraint from the 2020 GSK Agreement.

The change in our net operating assets of $271.8 million was primarily due to a $316.9 million decrease in accrued liabilities and other long-term liabilities related to settlement of profit-sharing constraint.

During the nine months ended September 30, 2022, net cash provided by operating activities was $1.6 billion.

This consisted primarily of net income of $617.4 million, non-cash charges of $475.1 million, and an increase in our net operating assets of $535.5 million.

The change in our net operating assets of $535.5 million was primarily due to a decrease in collaboration receivable by $491.9 million resulting from our profit-share from the sales of sotrovimab and an increase in accrued liabilities and other long-term liabilities by $65.1 million due to timing of payments, partially offset by a $24.5 million decrease in deferred revenue primarily driven by GSK's first option exercise under the 2021 GSK Agreement and Brii Bio's exercise for VIR-3434, partially offset by the grants received from Bill & Melinda Gates Foundation.

The non-cash charges of $475.1 million primarily consisted of $353.5 million for change in estimated constraint on profit-sharing amount, an unrealized loss of $120.0 million on our equity investment, $77.2 million for stock-based compensation expense, $7.9 million for revaluation of contingent consideration, $6.5 million for noncash lease expense and $4.4 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.

During the nine months ended September 30, 2023, net cash provided by investing activities was $269.4 million.

This consisted primarily of $1.5 billion in proceeds received from investments that matured during the period, partially offset by purchases of investments of $1.2 billion and property and equipment of $20.0 million.

During the nine months ended September 30, 2022, net cash used in investing activities was $1.0 billion.

This consisted primarily of purchases of investments of $1.1 billion and property and equipment of $55.4 million, partially offset by $84.8 million in proceeds received from investments that matured during the period.

Financing Activities

During the six months ended June 30, 2023, net cash provided by financing activities was $5.5 million.

During the nine months ended September 30, 2023, net cash provided by financing activities was $5.8 million.

This consisted primarily of proceeds from exercises of stock options of $3.4 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.

During the nine months ended September 30, 2022, net cash provided by financing activities was $32.8 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 exercises of stock options of $3.6 million, and from issuance of common stock under our employee stock purchase plan of $2.1 million, partially offset by $1.2 million for payment of contingent consideration.

Critical Accounting Policies and Estimates

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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.

There have been no significant changes in our critical accounting policies during the nine months ended September 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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis