Vir Biotechnology, Inc. 10-Q

Item 1. Financial Statements. VIR BIOTECHNOLOGY, INC. Condensed Consolidated Balance Sheets (in thousands, except share and per share data) (unaudited) September 30, 2023 December 31, 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 452,100 $ 848,631 Short-term investments 1,233,628 1,521,517 Restricted cash and cash equivalents, current 13,193 12,681 Equity investments 10,825 31,892 Prepaid expenses and other current assets 59,430 104,356 Total current assets 1,769,176 2,519,077 Intangible assets, net 25,457 32,755 Goodwill 16,937 16,937 Property and equipment, net 99,309 105,609 Operating lease right-of-use assets 72,622 82,557 Restricted cash and cash equivalents, noncurrent 7,057 6,656 Long-term investments 39,617 23,927 Other assets 14,720 14,570 TOTAL ASSETS $ 2,044,895 $ 2,802,088 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 3,627 $ 6,422 Accrued and other liabilities 146,111 489,090 Deferred revenue, current 15,312 15,517 Total current liabilities 165,050 511,029 Deferred revenue, noncurrent 53,207 53,207 Operating lease liabilities, noncurrent 114,119 123,837 Contingent consideration, noncurrent 24,300 24,937 Other long-term liabilities 13,134 11,115 TOTAL LIABILITIES 369,810 724,125 Commitments and contingencies (Note 7) STOCKHOLDERS’ EQUITY: Preferred stock, $ 0.0001 par value; 10,000,000 shares authorized as of September 30, 2023 and December 31, 2022; no shares issued and outstanding as of September 30, 2023 and December 31, 2022 — — Common stock, $ 0.0001 par value; 300,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 134,497,886 and 133,236,687 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively 13 13 Additional paid-in capital 1,798,823 1,709,835 Accumulated other comprehensive loss ( 1,900 ) ( 9,122 ) (Accumulated deficit) retained earnings ( 121,851 ) 377,237 TOTAL STOCKHOLDERS’ EQUITY 1,675,085 2,077,963 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,044,895 $ 2,802,088 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents VIR BIOTECHNOLOGY, INC. Condensed Consolidated Statements of Operations ( in thousands, except share and per share data ) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Collaboration revenue $ ( 4,387 ) $ 309,145 $ 28,408 $ 1,483,860 Contract revenue 289 39,998 1,484 52,534 License revenue from a related party — 22,289 — 22,289 Grant revenue 6,737 3,125 39,501 7,704 Total revenues 2,639 374,557 69,393 1,566,387 Operating expenses: Cost of revenue 38 22,253 1,967 140,323 Research and development 148,253 114,166 477,756 319,475 Selling, general and administrative 41,080 43,174 134,959 123,019 Total operating expenses 189,371 179,593 614,682 582,817 (Loss) income from operations ( 186,732 ) 194,964 ( 545,289 ) 983,570 Other income (expense): Change in fair value of equity investments ( 2,707 ) ( 13,590 ) ( 20,896 ) ( 120,019 ) Interest income 21,931 9,332 66,254 11,920 Other income (expense), net 882 27,026 ( 7,506 ) 30,447 Total other income (expense) 20,106 22,768 37,852 ( 77,652 ) (Loss) income before benefit from (provision for) income taxes ( 166,626 ) 217,732 ( 507,437 ) 905,918 Benefit from (provision for) income taxes 3,213 ( 42,420 ) 8,293 ( 288,478 ) Net (loss) income $ ( 163,413 ) $ 175,312 $ ( 499,144 ) $ 617,440 Net loss attributable to noncontrolling interest $ — $ — $ ( 56 ) $ — Net (loss) income attributable to Vir $ ( 163,413 ) $ 175,312 $ ( 499,088 ) $ 617,440 Net (loss) income per share attributable to Vir, basic $ ( 1.22 ) $ 1.32 $ ( 3.73 ) $ 4.66 Net (loss) income per share attributable to Vir, diluted $ ( 1.22 ) $ 1.30 $ ( 3.73 ) $ 4.58 Weighted-average shares outstanding, basic 134,289,620 132,729,530 133,969,878 132,422,028 Weighted-average shares outstanding, diluted 134,289,620 134,963,317 133,969,878 134,711,777 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents VIR BIOTECHNOLOGY, INC. Condensed Consolidated Statements of Comprehensive (Loss) Income ( in thousands) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net (loss) income $ ( 163,413 ) $ 175,312 $ ( 499,144 ) $ 617,440 Other comprehensive income (loss): Unrealized gain (loss) on investments 994 ( 4,318 ) 7,194 ( 10,754 ) Amortization of actuarial gain (loss) 9 ( 9 ) 28 ( 27 ) Other comprehensive income (loss) 1,003 ( 4,327 ) 7,222 ( 10,781 ) Comprehensive (loss) income $ ( 162,410 ) $ 170,985 $ ( 491,922 ) $ 606,659 Comprehensive loss attributable to noncontrolling interest — — ( 56 ) — Comprehensive (loss) income attributable to Vir $ ( 162,410 ) $ 170,985 $ ( 491,866 ) $ 606,659 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents VIR BIOTECHNOLOGY, INC. Condensed Consolidated Statements of Stockholders' Equity (in thousands, except shares amounts) (unaudited) Vir Stockholders' Equity Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings (Accumulated Deficit) Noncontrolling interest Total Stockholders' Equity Share Amount Balance at June 30, 2023 134,230,494 $ 13 $ 1,771,536 $ ( 2,903 ) $ 41,562 $ — $ 1,810,208 Vesting of restricted common stock 73,351 — — — — — — Exercise of stock options 194,041 — 343 — — — 343 Stock-based compensation — — 26,944 — — — 26,944 Other comprehensive income — — — 1,003 — — 1,003 Net loss — — — — ( 163,413 ) — ( 163,413 ) Balance at September 30, 2023 134,497,886 $ 13 $ 1,798,823 $ ( 1,900 ) $ ( 121,851 ) $ — $ 1,675,085 Vir Stockholders' Equity Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Noncontrolling interest Total Stockholders' Equity Share Amount Balance at June 30, 2022 132,597,812 $ 13 $ 1,656,024 $ ( 7,553 ) $ 303,528 $ — $ 1,952,012 Vesting of restricted common stock 53,102 — — — — — — Exercise of stock options 376,444 — 2,044 — — — 2,044 Stock-based compensation — — 24,814 — — — 24,814 Other comprehensive loss — — — ( 4,327 ) — — ( 4,327 ) Net income — — — — 175,312 — 175,312 Balance at September 30, 2022 133,027,358 $ 13 $ 1,682,882 $ ( 11,880 ) $ 478,840 $ — $ 2,149,855 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents VIR BIOTECHNOLOGY, INC. Condensed Consolidated Statements of Stockholders' Equity (in thousands, except shares amounts) (unaudited) Vir Stockholders' Equity Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings (Accumulated Deficit) Noncontrolling interest Total Stockholders' Equity Share Amount Balance at December 31, 2022 133,236,687 $ 13 $ 1,709,835 $ ( 9,122 ) $ 377,237 $ — $ 2,077,963 Vesting of restricted common stock 690,811 — — — — — — Exercise of stock options 455,485 — 3,395 — — — 3,395 Issuance of common stock under employee stock purchase plan 114,903 — 2,605 — — — 2,605 Stock-based compensation — — 83,044 — — — 83,044 Other comprehensive income — — — 7,222 — — 7,222 Contributions from noncontrolling interest owners — — — — — 100 100 Increase in ownership interest in a subsidiary — — ( 56 ) — — ( 44 ) ( 100 ) Net loss — — — — ( 499,088 ) ( 56 ) ( 499,144 ) Balance at September 30, 2023 134,497,886 $ 13 $ 1,798,823 $ ( 1,900 ) $ ( 121,851 ) $ — $ 1,675,085 Vir Stockholders' Equity Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss (Accumulated Deficit) Retained Earnings Noncontrolling interest Total Stockholders' Equity Share Amount Balance at December 31, 2021 131,161,404 $ 13 $ 1,571,535 $ ( 1,099 ) $ ( 138,600 ) $ — $ 1,431,849 Issuance of common stock in connection with a grant agreement 881,365 — 28,462 — — — 28,462 Vesting of restricted common stock 323,700 — — — — — — Exercise of stock options 566,714 — 3,602 — — — 3,602 Issuance of common stock under employee stock purchase plan 94,175 — 2,066 — — — 2,066 Stock-based compensation — — 77,217 — — — 77,217 Other comprehensive loss — — — ( 10,781 ) — — ( 10,781 ) Net income — — — — 617,440 — 617,440 Balance at September 30, 2022 133,027,358 $ 13 $ 1,682,882 $ ( 11,880 ) $ 478,840 $ — $ 2,149,855 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents VIR BIOTECHNOLOGY, INC. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Nine Months Ended September 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ ( 499,144 ) $ 617,440 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Change in estimated constraint on profit-sharing amount ( 28,101 ) 353,526 Depreciation and amortization 14,573 4,431 Amortization of intangible assets 399 399 Accretion of discounts on investments, net ( 10,057 ) ( 1,315 ) Payment of contingent consideration in excess of acquisition date fair value — ( 93,803 ) Noncash lease expense 6,218 6,473 Change in fair value of equity investments 20,895 120,019 Change in estimated fair value of contingent consideration ( 637 ) 7,890 Stock-based compensation 83,044 77,217 In-process research and development impairment 6,899 — Long-lived assets impairment 7,474 — Other ( 578 ) 301 Changes in operating assets and liabilities: Receivable from collaboration 3,041 491,872 Prepaid expenses and other current assets 54,194 11,023 Other assets ( 150 ) ( 3,434 ) Accounts payable ( 1,895 ) ( 2,003 ) Accrued liabilities and other long-term liabilities ( 316,918 ) 65,144 Operating lease liabilities ( 9,910 ) ( 2,547 ) Deferred revenue ( 205 ) ( 24,506 ) Net cash (used in) provided by operating activities ( 670,858 ) 1,628,127 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of an equipment — 22 Purchases of property and equipment ( 20,038 ) ( 55,432 ) Purchases of investments ( 1,197,199 ) ( 1,069,752 ) Maturities of investments 1,486,677 84,836 Net cash provided by (used in) investing activities 269,440 ( 1,040,326 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock in connection with a grant agreement — 28,462 Payment of principal on financing lease obligation ( 200 ) ( 183 ) Proceeds from exercise of stock options 3,395 3,602 Issuance of common stock under ESPP 2,605 2,066 Contributions from noncontrolling interest owners 100 — Increase in ownership interest in a subsidiary ( 100 ) — Payment of contingent consideration — ( 1,197 ) Net cash provided by financing activities 5,800 32,750 Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents ( 395,618 ) 620,551 Cash, cash equivalents and restricted cash and cash equivalents at beginning of period 867,968 363,415 Cash, cash equivalents and restricted cash and cash equivalents at end of period $ 472,350 $ 983,966 RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS TO THE CONDENSED CONSOLIDATED BALANCE SHEETS: Cash and cash equivalents $ 452,100 $ 963,735 Restricted cash and cash equivalents, current 13,193 12,955 Restricted cash and cash equivalents, noncurrent 7,057 7,276 Total cash, cash equivalents and restricted cash and cash equivalents $ 472,350 $ 983,966 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 1. Organization Business Overview Vir Biotechnology, Inc. (“Vir” or the “Company”) is an immunology company focused on combining cutting-edge technologies to treat and prevent serious infectious diseases and other serious conditions. Vir has assembled two technology platforms that are designed to stimulate and enhance the immune system by exploiting critical observations of natural immune processes. Its current clinical development pipeline consists of product candidates targeting hepatitis B virus (“HBV”), hepatitis delta virus (“HDV”) and human immunodeficiency virus (“HIV”). Vir has several preclinical candidates in its pipeline including those targeting influenza A and B, coronavirus disease 2019 (“COVID-19”), respiratory syncytial virus and human metapneumovirus, (“RSV” and “MPV”, respectively), and human papillomavirus (“HPV”). In January 2023, a majority-owned subsidiary, Encentrio Therapeutics, Inc. (“Encentrio”), was incorporated in the State of Delaware. The Company initially owned 80 % of Encentrio’s outstanding voting shares. During the three months ended June 30, 2023, the Company increased its ownership of Encentrio's outstanding voting shares to 100 %. The primary purpose of Encentrio is to conduct research and development of oncology therapeutics. Liquidity and Capital Resources In November 2020, the Company entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), under which the Company may from time to time offer and sell shares of its common stock for an aggregate offering price of up to $ 300.0 million, through or to Cowen, acting as sales agent or principal. The shares will be offered and sold under the Company’s shelf registration statement on Form S-3 and a related prospectus filed with the Securities and Exchange Commission (the “SEC”) on November 10, 2020. The Company 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 September 30, 2023, no shares have been sold under the Sales Agreement. The Sales Agreement will expire in November 2023. As of September 30, 2023, the Company had $ 1.7 billion in cash, cash equivalents, and investments, which the Company believes will be sufficient to fund its operations for a period through at least twelve months from the issuance date of these unaudited condensed consolidated financial statements. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. The unaudited condensed consolidated financial statements include the accounts of Vir and its majority-owned subsidiaries. For consolidated entities where Vir owns or is exposed to less than 100.0% of the economics, the Company records net income (loss) attributable to noncontrolling interests, net of tax in its unaudited condensed consolidated statements of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. All intercompany balances and transactions have been eliminated upon consolidation. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s financial information. The condensed consolidated results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or for any other future annual or interim period. Certain information and footnote disclosures typically included in the Company’s annual consolidated financial statements have been condensed or omitted. As such, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023. 9 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements Use of Estimates The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates. Concentration of Credit Risk, Credit Loss and Other Risks and Uncertainties Although the Company received Emergency Use Authorization (“EUA”), temporary authorization or marketing approval for sotrovimab (under the brand name Xevudy ® ), sotrovimab is currently deauthorized in the U.S. and has limitations in use outside of the U.S. In addition, the Company is subject to a number of other challenges and risks similar to other biopharmaceutical companies in the early stage, including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, the need to obtain marketing approval for its other product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of sotrovimab and other product candidates and protection of proprietary technology. If the Company does not successfully obtain regulatory approval, commercialize or partner any of its product candidates, it will be unable to generate revenue from product sales or maintain profitability. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and investments. Cash and cash equivalents are deposited in checking and sweep accounts at financial institutions. Such deposits may, at times, exceed federally insured limits. On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver. Prior to such events, the Company held cash deposits at SVB in excess of government insured limits. On March 12, 2023, the U.S. Treasury Department, the Federal Reserve and the FDIC jointly announced enabling actions that fully protect all SVB depositors’ insured and uninsured deposits, and that such depositors would have access to all of their funds starting March 13, 2023. On March 13, 2023, the Company was able to access its deposits at the FDIC’s newly created Silicon Valley Bridge Bank, N.A., which was subsequently purchased on March 27, 2023 by First Citizens Bank & Trust Company, a subsidiary of First Citizens BancShares, Inc. As such, no losses have been incurred by the Company on deposits that were held at SVB. Management believes that the Company is not currently exposed to significant credit risk as the Company’s investments are held in custody at a third-party financial institution. The Company’s investment policy limits investments to certain types of securities issued by the U.S. government, its agencies and institutions,with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and investments, and issuers of the investments to the extent recorded on the unaudited condensed consolidated balance sheets. As of September 30, 2023, the Company has no off-balance sheet concentrations of credit risk. The Company is exposed to credit losses primarily through receivables from customers and collaborators and through its available-for-sale debt securities. The Company’s expected loss allowance methodology for the receivables is developed using historical collection experience, current and future economic market conditions, a review of the current aging status and financial condition of the entities. Specific allowance amounts are established to record the appropriate allowance for customers that have a higher probability of default. Balances are written off when determined to be uncollectible. The Company’s expected loss allowance methodology for the debt securities is developed by reviewing the extent of the unrealized loss, the size, term, geographical location, and industry of the issuer, the issuers’ credit ratings and any changes in those ratings, as well as reviewing current and future economic market conditions and the issuers’ current status and financial condition. During the nine months ended September 30, 2023 and 2022, there was no allowance for losses on available-for-sale debt securities attributable to credit risk. Investments Investments include available-for-sale debt securities and equity investments, which are carried at estimated fair value. 10 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements Available-for-Sale Debt Securities The Company’s valuations of marketable securities are generally derived from independent pricing services based on quoted prices in active markets for similar securities at period end. Generally, investments with original maturities beyond three months at the date of purchase and which mature at, or less than 12 months from, the unaudited condensed consolidated balance sheet date are considered short-term investments, with all others considered to be long-term investments. Unrealized gains and losses deemed temporary in nature are reported as a component of accumulated other comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income on the unaudited condensed consolidated statements of operations. The cost of securities sold is based on the specific identification method. Equity Investments The Company measures its investment in equity securities at fair value at each reporting date based on the market price at period end if it has a readily determinable fair value. Otherwise, the investments in equity securities are measured at cost less impairment, adjusted for observable price changes for identical or similar investments of the same issuer unless the Company has significant influence or control over the investee. Changes in fair value resulting from observable price changes are presented as change in fair value of equity investments, and changes in fair value resulting from foreign currency translation are included in other income (expense), net on the unaudited condensed consolidated statements of operations. Restricted Cash and Cash Equivalents Restricted cash and cash equivalents represent money market funds to secure standby letters of credit and security deposits with financial institutions, both under office and laboratory space lease agreements. Additionally, funds received from certain grants are restricted as to their use and are therefore classified as restricted cash and cash equivalents. Revenue Recognition Collaboration, License and Contract Revenue Under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when the Company’s customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods and services. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as the Company satisfies a performance obligation. For collaborative arrangements that fall within the scope of ASC 808, Collaborative Arrangements (“ASC 808”), the Company first determines which elements of the collaboration are deemed to be a performance obligation with a customer within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808 and are not subject to the guidance in ASC 606, the Company applies the revenue recognition model under ASC 606, including the royalty exception guidance and variable consideration guidance under ASC 606 as described below, or other guidance, as deemed appropriate. When the Company is considered an agent in elements of collaboration arrangements within the scope of ASC 808, it records its share of collaboration revenue in the period in which such sales occur. The Company is considered an agent when the collaboration partner controls the product before transfer to the customers and has the ability to direct the use of and obtain substantially all of the remaining benefits from the product. In these instances, collaboration revenue is based upon the net sales reported by the Company's collaboration partners, net of cost of goods sold and allowable expenses (e.g., manufacturing, distribution, medical affairs, selling, and marketing expenses) in the period. In order to record collaboration revenue, the Company utilizes certain information from its collaboration partner, including actual net product sales and costs incurred for sales activities, and makes 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. The Company uses these estimates to determine whether payments due to it under its collaboration arrangements, such as profit-share payments, should be recognized as revenue in the period that they become due or whether any portion of the payments due should be constrained from revenue recognition because it is not probable that recognizing such amounts would not result in a material reversal of revenues in future reporting periods. 11 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements The Company has entered into a number of license and collaboration agreements that fall within the scope of ASC 606. The Company evaluates the promised goods or services in these agreements to determine which ones represent distinct performance obligations. Prior to recognizing revenue, the Company estimates 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 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, profit-sharing arrangements, and royalty and commercial sales milestone payments. If there are multiple distinct performance obligations, the Company allocates the transaction price to each distinct performance obligation based on their estimated standalone selling prices (“SSP”). The Company estimates the SSP for each distinct performance obligation by considering information such as market conditions, entity-specific factors, and information about its customer that is reasonably available. The Company considers estimation approaches that allow it to maximize the use of observable inputs. These estimation approaches may include the adjusted market assessment approach, the expected cost plus a margin approach or the residual approach. The Company also considers whether to use a different estimation approach or a combination of approaches to estimate the SSP for each distinct performance obligation. Developing certain assumptions (e.g., treatable patient population, expected market share, probability of success and product profitability, discount rate based on weighted-average cost of capital) to estimate the SSP of a distinct performance obligation requires significant judgment. For performance obligations satisfied over time, the Company estimates the efforts needed to complete the performance obligation and recognizes revenue by measuring the progress towards complete satisfaction of the performance obligation using an input measure. For arrangements that include sales-based royalties, including commercial milestone payments based on pre-specified levels of sales, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Achievement of these royalties and commercial milestones may solely depend upon the performance of the licensee. Grant Revenue Grants received, including cost reimbursement agreements, are assessed to determine if the agreement should be accounted for as an exchange transaction or a contribution. An agreement is accounted for as a contribution if the resource provider does not receive commensurate value in return for the assets transferred. Contributions are recognized as grant revenue when all donor-imposed conditions have been met. Contingent Consideration Obligations Contingent consideration obligations incurred in connection with a business combination are recorded at their fair values on the acquisition date, are remeasured each subsequent reporting period until the related contingencies are resolved and are classified as contingent consideration on the unaudited condensed consolidated balance sheets. The changes in fair values of contingent consideration related to the achievement of various milestones are recorded within research and development expenses or selling, general and administrative expenses based on the nature of the relevant underlying activities. 12 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 3. Fair Value Measurements The Company determines the fair value of financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows: • Level 1: Inputs which include quoted prices in active markets for identical assets and liabilities. • Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The carrying amounts of the Company’s financial instruments, including accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. Cash Equivalents and Available-for-Sale Securities The following tables summarize the Company’s Level 1 and Level 2 financial assets measured at fair value on a recurring basis within the fair value hierarchy as of September 30, 2023 and December 31, 2022: September 30, 2023 Valuation Hierarchy Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Aggregate Fair Value (in thousands) Assets: Money market funds (1) Level 1 $ 470,323 $ — $ — $ 470,323 U.S. government treasuries Level 2 1,073,982 15 ( 1,009 ) 1,072,988 U.S. government agency bonds and discount notes Level 2 167,372 14 ( 220 ) 167,166 Equity securities Level 1 N/A N/A N/A 10,825 Total financial assets $ 1,711,677 $ 29 $ ( 1,229 ) $ 1,721,302 ______________________________________________ (1) Includes $ 20.3 million of restricted cash equivalents. December 31, 2022 Valuation Hierarchy Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Aggregate Fair Value (in thousands) Assets: Money market funds (1) Level 1 $ 909,342 $ — $ — $ 909,342 U.S. government treasuries Level 2 1,493,841 — ( 8,396 ) 1,485,445 Equity securities Level 1 N/A N/A N/A 31,892 Total financial assets $ 2,403,183 $ — $ ( 8,396 ) $ 2,426,679 ______________________________________________ (1) Includes $ 19.3 million of restricted cash equivalents. Accrued interest receivable excluded from both the fair value and amortized cost basis of the available-for-sale debt securities are presented within prepaid expenses and other current assets in the unaudited condensed consolidated balance sheets. Accrued interest receivable amounted to $ 2.9 million and $ 2.5 million as of September 30, 2023 and December 31, 13 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 2022, respectively. The Company did not write off any accrued interest receivable during the nine months ended September 30, 2023 and 2022. The Company recognized total net unrealized losses of $ 1.2 million and $ 8.4 million in accumulated other comprehensive loss as of September 30, 2023 and December 31, 2022, respectively. The gross unrealized losses related to U.S. government treasuries as of September 30, 2023 and December 31, 2022 were due to changes in interest rates. As of September 30, 2023, there were no investments that have been in a continuous material unrealized loss position for longer than 12 months. The Company determined that the gross unrealized losses on our investments as of September 30, 2023 were temporary in nature. The Company currently does not intend, and it is highly unlikely that it will be required, to sell these securities before recovery of their amortized cost basis. As of September 30, 2023, no securities have contractual maturities of longer than 2 years. As of September 30, 2023, the Company's equity investment consisted solely of ordinary shares of Brii Biosciences Limited (“Brii Bio Parent”). The equity securities of Brii Bio Parent are listed on the Stock Exchange of Hong Kong Limited and are considered to be marketable equity securities and subsequently remeasured at fair value at each reporting date. As of September 30, 2023, the Company remeasured the equity investment at a fair value of $ 10.8 million. The Company recognized an unrealized loss of $ 2.7 million and $ 13.6 million, for the three months ended September 30, 2023 and 2022, respectively, and an unrealized loss of $ 20.9 million and $ 120.0 million, for the nine months ended September 30, 2023 and 2022, respectively, as other income (expense) in the unaudited condensed consolidated statement of operations. For the three and nine months ended September 30, 2023 and 2022, the unrealized losses related to foreign currency translation for the respective periods were immaterial. Contingent Consideration Obligations Contingent consideration obligations include potential milestone payments in connection with the acquisition of Humabs Biomed SA (“Humabs”). The Company classifies the contingent consideration as Level 3 financial liabilities within the fair value hierarchy as of September 30, 2023 and December 31, 2022. The estimated fair value of the contingent consideration related to the Humabs acquisition was determined by calculating the probability-weighted clinical, regulatory and commercial milestone payments based on the assessment of the likelihood and estimated timing that certain milestones would be achieved. As of September 30, 2023, the Company calculated the estimated fair value of the remaining clinical and regulatory milestones related to VIR-3434, an investigational subcutaneously administered HBV-neutralizing monoclonal antibody, or mAb, using the following significant unobservable inputs: Unobservable input Range (Weighted-Average) 1 Discount rates 12.7 % - 13.3 % ( 13.0 %) Probability of achievement 14.4 % - 60.0 % ( 43.0 %) ______________________________________________ (1) Unobservable inputs were weighted based on the relative fair value of the clinical and regulatory milestone payments. For the commercial milestones, the Company used a Monte Carlo simulation. As of September 30, 2023, the Monte Carlo simulation assumed a commercial product launch and associated discrete revenue forecasts, as well as the following significant unobservable inputs for the remaining commercial milestones related to VIR-3434: Unobservable input Value Volatility 70.0 % Discount rate 11.0 % Probability of achievement 29.1 % The discount rate captures the credit risk associated with the payment of the contingent consideration when earned and due. As of September 30, 2023 and December 31, 2022, the estimated fair value of the contingent consideration related to the Humabs acquisition was $ 24.3 million and $ 23.4 million, respectively, with changes in the estimated fair value recorded in research and development expenses in the unaudited condensed consolidated statements of operations. 14 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements The estimated fair value of the contingent consideration related to the Humabs acquisition involves significant estimates and assumptions that give rise to measurement uncertainty. The following table sets forth the changes in the estimated fair value of the Company’s contingent consideration obligations (in thousands): Contingent Consideration Balance at December 31, 2022 $ 24,937 Changes in fair value ( 627 ) Balance at September 30, 2023 $ 24,310 4. Grant Agreements Bill & Melinda Gates Foundation Grants The Company has entered into various grant agreements with the Bill & Melinda Gates Foundation, under which it was awarded grants totaling up to $ 49.9 million to support its human cytomegalovirus ("HCMV") vaccine programs for HIV and tuberculosis as well as the Company's HIV vaccinal antibody program and malaria vaccinal antibody program. The term of the grant agreements will expire at various dates through June 2027, unless terminated earlier by the Bill & Melinda Gates Foundation for the Company’s breach, failure to progress the funded project, in the event of the Company’s change of control, change in the Company’s tax status, or significant changes in the Company’s leadership that the Bill & Melinda Gates Foundation reasonably believes may threaten the success of the projects. Concurrently with the execution of the grant agreement for the vaccinal antibody program, the Company entered into a stock purchase agreement with the Bill & Melinda Gates Foundation, under which the Bill & Melinda Gates Foundation purchased 881,365 shares of the Company’s common stock on January 13, 2022, at a price per share of $ 45.38 , for an aggregate purchase price of approximately $ 40.0 million. The fair market value of the common stock issued to the Bill & Melinda Gates Foundation was $ 28.5 million, based on the closing stock price of $ 37.65 per share on the closing date and taking into account a discount for the lack of marketability due to the restrictions in place on the underlying shares, resulting in a $ 11.3 million premium received by the Company. The Company accounted for the common stock issued to the Bill & Melinda Gates Foundation based on its fair market value on the closing date and determined that the premium paid by the Bill & Melinda Gates Foundation should be included in the deferred revenue from the vaccinal antibody grant. Payments received in advance that are related to future research activities along with the aforementioned premium received are deferred and recognized as revenue when the donor-imposed conditions are met, which is as the research and development activities are performed. The premium received by the Company is deferred and recognized over the same period as the grant proportionally. The Company recognized grant revenue of $ 3.8 million and $ 2.8 million for the three months ended September 30, 2023 and 2022, respectively, and $ 10.5 million and $ 7.4 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023 and December 31, 2022, the Company had deferred revenue of $ 15.3 million and $ 15.5 million, respectively. As of September 30, 2023 and December 31, 2022, the Company had $ 9.2 million and $ 7.7 million, respectively, within accrued and other liabilities, which may need to be refunded to the Bill & Melinda Gates Foundation. Biomedical Advanced Research and Development Authority In September 2022, the Company entered into an other transaction for advanced research agreement (the “BARDA Agreement”) with the Biomedical Advanced Research and Development Authority (“BARDA”), part of the U.S. Department of Health and Human Services’ Administration for Strategic Preparedness and Response. Under the BARDA Agreement, the Company may receive up to an estimated $ 1.0 billion to advance the development of a full portfolio of innovative solutions to address influenza and potentially other infectious disease threats. The Base Period for the BARDA Agreement includes government funding of approximately $ 55.0 million to reimburse a portion of expenses incurred by the Company to support the development of VIR-2482, an investigational prophylactic monoclonal antibody designed with the aim to protect against seasonal and pandemic influenza, including expenses related to the Phase 2 pre-exposure prophylaxis trial of VIR-2482. The BARDA Agreement also provides for additional BARDA funding after the exercise by BARDA of up to twelve options to further support the development of pre-exposure prophylactic antibodies including and beyond 15 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements VIR-2482 for the prevention of influenza illness or possibly supporting medical countermeasures for other pathogens of pandemic potential. In September 2023, the Company and BARDA entered into Amendment No. P00001 to the BARDA Agreement (the “Amended BARDA Agreement”), pursuant to which BARDA awarded the Company $ 50.1 million in new funding upon the exercise of an additional option. The Company will use $ 40.0 million to support the development of VIR-7229 through a Phase 1 clinical trial and $ 10.1 million to support the discovery of new monoclonal antibody against a second pathogen of pandemic potential. The Company may also receive up to $ 11.2 million of additional funding for the Base Period under the Amended BARDA Agreement to wind down activities related to the Phase 2 pre-exposure prophylaxis trial of VIR-2482. The Amended BARDA Agreement will expire in July 2027 and may be extended by mutual written agreement of the Company and BARDA, if funding is available and research opportunities within scope reasonably warrant, or, if any of the options are exercised (as described above), to cover the period of such exercised option set forth in the Amended BARDA Agreement. The Amended BARDA Agreement is terminable by the Company and BARDA at any time under specified circumstances, including for convenience. The Company recognized grant revenue under the BARDA Agreement of $ 2.9 million and $ 29.0 million for the three and nine months ended September 30, 2023, respectively, and an other receivable in prepaid expenses and other current assets of $ 4.8 million as of September 30, 2023. As of September 30, 2023, $ 60.9 million of potential future reimbursement remains available out of $ 116.3 million total awarded amount under the Amended BARDA Agreement. 5. Collaboration and License Agreements Collaboration Agreements with GSK 2020 GSK Agreement In 2020, the Company, Glaxo Wellcome UK Limited and Beecham S.A. entered into a collaboration agreement (the “2020 GSK Agreement”). Subsequently, Beecham S.A. assigned and transferred all its rights, title, interest, and benefit in the 2020 GSK Agreement to GlaxoSmithKline Biologicals S.A. (Glaxo Wellcome UK Limited and GlaxoSmithKline Biologicals S.A., referred to, individually and together, as “GSK”). Under the terms of the 2020 GSK Agreement, the Company and GSK agreed to collaborate to research, develop and commercialize products for the prevention, treatment and prophylaxis of diseases caused by SARS-CoV-2, the virus that causes COVID-19, and potentially other coronaviruses. The collaboration initially focused on the development and commercialization of three programs: (1) antibodies targeting SARS-CoV-2 and potentially other coronaviruses (the “Antibody Program”); (2) vaccines targeting SARS-CoV-2 and potentially other coronaviruses (the “Vaccine Program”), and (3) products based on genome-wide CRISPR screening of host targets expressed in connection with exposure to SARS-CoV-2 and potentially other coronaviruses (the “Functional Genomics Program”). On February 8, 2023, the Company and GSK entered into Amendment No. 2 and Amendment No. 3 to the 2020 GSK Agreement. Pursuant to Amendment No. 2, the Company and GSK agreed to remove the Vaccine Program from the 2020 GSK Agreement, and to wind down and terminate the cost-sharing arrangements and all ongoing activities in relation to the Vaccine Program. As of the effective date of Amendment No. 2, the Vaccine Program had not yet advanced to its predefined development candidate stage. The Company retains the right to progress development of vaccine products directed to SARS-CoV-2 and other coronaviruses independently (including with or for third parties) outside the scope of the 2020 GSK Agreement, subject to the payment of tiered royalties to GSK on net sales of any vaccine products covered by certain GSK intellectual property rights in the low single digits. Pursuant to Amendment No. 3, the Company and GSK agreed to modify the Antibody Program to remove from the collaboration all coronavirus antibodies other than sotrovimab and VIR-7832, and certain variants thereof. Sotrovimab and VIR-7832, and certain variants thereof, remain subject to the terms of the 2020 GSK Agreement, and the Company retains the sole right to progress the development and commercialization of the terminated antibody products independently (including with or for third parties), subject to the payment of tiered royalties to GSK on net sales of such terminated antibody products at percentages ranging from the very low single digits to the mid-single digits, depending on the nature of the antibody product being commercialized. Subject to an opt-out mechanism, the parties share all development costs, manufacturing costs, and costs and expenses for the commercialization of the collaboration products, with the Company bearing 72.5 % of such costs for the antibody products, except that GSK has the sole right to develop (including to seek, obtain or maintain regulatory approvals), manufacture and commercialize sotrovimab in and for mainland China, Hong Kong, Macau and Taiwan at GSK's sole cost and expense, and equal sharing of such costs for the functional genomics products. 16 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements The 2020 GSK Agreement will remain in effect with respect to each collaboration program for as long as there is a collaboration product being developed or commercialized by the lead party, or the non-opt-out party, in such program. Either party has the right to terminate the 2020 GSK Agreement in the case of the insolvency of the other party, an uncured material breach of the other party with respect to a collaboration program or collaboration product, or as mutually agreed by the parties. In May 2021, the U.S. Food and Drug Administration (“FDA”) granted an EUA in the United States for sotrovimab, the first collaboration product under the Antibody Program. 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. As described in Note 2—Summary of Significant Accounting Policies, the Company’s 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. As the Company is the agent, the Company recognizes its 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. In periods when allowable expenses exceed amounts recognized for net product sales of sotrovimab, negative revenue would be reported in our consolidated statements of operations. The Company’s contractual share of the profit-sharing amounts is subject to potential future adjustments to allowable expenses, which represents a form of variable consideration. At each reporting period, the Company evaluates the latest available facts and circumstances to determine whether any portion of profit-sharing amounts should be constrained. In 2023, GSK reported to the Company certain allowable manufacturing expenses related to excess sotrovimab supply and binding reserved manufacturing capacity not utilized, which the Company had previously reserved as constraint on its cumulative profit-sharing amounts. For the three and nine months ended September 30, 2023, the Company paid GSK $ 67.0 million and $ 340.5 million, respectively, relating to these manufacturing expenses. GSK may continue to adjust allowable manufacturing expenses for the Company’s share of the excess supply write-offs and unused binding manufacturing capacity and report to the Company as cost-sharing amounts in future periods. The Company evaluated the latest available facts and circumstances to update its evaluation of profit-sharing amounts to be constrained. As of September 30, 2023, the Company reserved $ 0.9 million as accrued liability for its share of the remaining estimated manufacturing expenses related to excess sotrovimab supply and binding reserved manufacturing capacity not utilized. The Company re-assesses these estimates each reporting period. During the three and nine months ended September 30, 2023 and 2022, the Company recorded profit-sharing amounts, profit-sharing amounts constrained, and profit-sharing amounts constrained, released as components of collaboration revenue in the unaudited condensed consolidated statements of operations, as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands) Collaboration revenue, net Profit-sharing amount $ ( 6,038 ) $ 291,226 $ ( 7,198 ) $ 1,863,374 Profit-sharing amount constrained — ( 2,431 ) — ( 399,864 ) Profit-sharing amount previously constrained, released 1,651 20,350 35,606 20,350 Total collaboration revenue, net $ ( 4,387 ) $ 309,145 $ 28,408 $ 1,483,860 Costs associated with co-development activities performed under the 2020 GSK Agreement are included in research and development expenses on the unaudited condensed consolidated statements of operations, with any reimbursement of costs by GSK reflected as a reduction of such expenses. Under the 2020 GSK Agreement, the Company recognized additional net research and development expenses of $ 6.1 million and $ 10.4 million during the three months ended September 30, 17 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 2023 and 2022, respectively, and $ 18.6 million and $ 24.0 million during the nine months ended September 30, 2023 and 2022, respectively. 2021 Expanded GSK Collaboration In 2021, the Company and GSK entered into a collaboration agreement (the “2021 GSK Agreement”) under which the parties agreed to expand the 2020 GSK Agreement to collaborate on three separate programs: (1) a program to research, develop and commercialize monoclonal antibodies (“mAbs”) for the prevention, treatment or prophylaxis of the influenza virus (the “Influenza Program”), excluding VIR-2482 unless GSK exercises its option as described below; (2) an expansion of the parties’ current Functional Genomics Program to focus on functional genomics screens directed to targets associated with respiratory viruses (the “Expanded Functional Genomics Program”); and (3) additional programs to develop neutralizing mAbs directed to up to three non-influenza target pathogens selected by GSK (the “Selected Pathogens” and such programs, the “Additional Programs”). Under the Influenza Program, the parties collaborate to research, develop and commercialize mAbs for the prevention, treatment or prophylaxis of influenza, including the Company’s influenza mAbs (with respect to VIR-2482, only if GSK exercises its option). The Company conducts the development and clinical manufacturing activities for VIR-2482 up to the completion of a Phase 2 clinical trial. Provided that the Company conducts and completes a Phase 2 clinical trial for VIR-2482, GSK has the exclusive option to obtain exclusive rights to co-develop and commercialize VIR-2482 under the Influenza Program (the “VIR-2482 Option”). As of September 30, 2023, GSK had not exercised the VIR-2482 Option. On July 20, 2023, the Company announced that the VIR-2482 Phase 2 Prevention of Illness Due to Influenza A, or PENINSULA, trial evaluating the prevention of symptomatic influenza A illness did not meet primary or secondary efficacy endpoints. GSK is the lead party for development, clinical and commercial manufacturing and commercialization activities for products under the Influenza Program (other than VIR-2482 unless and until GSK exercises the VIR-2482 Option, if applicable). The parties mutually agree upon the allocation of responsibility for the development of products under the Expanded Functional Genomics Program, and for the development and early-stage manufacturing of products under the Additional Programs if and when GSK decides which Selected Pathogens to pursue. GSK is primarily responsible for commercial manufacturing and commercialization activities for products under the Expanded Functional Genomics Program and Additional Programs, if and when selected by GSK. For each collaboration program, the Company granted or will grant GSK certain license rights related to the development, manufacturing and commercialization of products arising from the program. GSK selected respiratory syncytial virus (“RSV”) as its first pathogen under the Additional Programs. The parties share 50 % of all development costs in accordance with the budget for each of the collaboration programs (other than for VIR-2482, unless GSK exercises the VIR-2482 Option). The parties also share 50 % of all profits and losses arising from any collaboration product. If GSK exercises the VIR-2482 Option, GSK will pay the Company an option exercise fee of $ 300.0 million unless certain agreed product criteria for VIR-2482 are not met, in which case the parties will negotiate an alternative option exercise fee. Upon achievement of a pre-defined regulatory milestone for the first product in the Influenza Program, which may be (i) VIR-2482 (if GSK exercised the VIR-2482 Option), (ii) a next-generation mAb, or (iii) any other influenza mAb approved by the Joint Steering Committee to be included in the collaboration, arising from the Influenza Program, GSK will make a milestone payment to the Company of up to $ 200.0 million. As of September 30, 2023, the total unrecognized transaction price of $ 51.7 million is classified as noncurrent deferred revenue on the Company's unaudited condensed consolidated balance sheets related to the remaining performance obligations, being the remaining two material rights resulting from the Selected Pathogen Rights. Costs associated with co-development activities performed under the 2021 GSK Agreement are included in research and development expenses in the unaudited condensed consolidated statements of operations, with any reimbursement of costs by GSK reflected as a reduction of such expenses. Under the 2021 GSK Agreement, the Company recognized additional net research and development expenses of $ 0.6 million and $ 0.3 million during the three months ended September 30, 2023 and 2022, respectively, and $ 1.9 million and $ 1.3 million during the nine months ended September 30, 2023 and 2022, respectively. 18 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 6. Balance Sheet Components Property and Equipment, net Property and equipment, net consists of the following: September 30, 2023 December 31, 2022 (in thousands) Laboratory equipment $ 43,158 $ 36,533 Computer equipment 2,684 2,545 Furniture and fixtures 2,887 2,852 Leasehold improvements 80,207 84,422 Construction in progress 22 — Property and equipment, gross 128,958 126,352 Less accumulated depreciation ( 29,649 ) ( 20,743 ) Total property and equipment, net $ 99,309 $ 105,609 Depreciation expenses were $ 4.5 million and $ 14.6 million for the three and nine months ended September 30, 2023, respectively, and $ 1.6 million and $ 4.4 million for the three and nine months ended September 30, 2022, respectively. Accrued and Other Liabilities Accrued and other liabilities consist of the following: September 30, 2023 December 31, 2022 (in thousands) Research and development expenses $ 65,693 $ 48,880 Payroll and related expenses 27,176 28,286 Accrued income taxes 15,415 15,228 Operating lease liabilities, current 13,557 4,137 Excess funds payable under grant agreements 9,217 7,652 Net profit-sharing amount 6,964 357,762 Other professional and consulting expenses 4,336 3,987 Other accrued expenses 3,711 12,711 Accrued royalties 42 10,447 Total accrued and other liabilities $ 146,111 $ 489,090 7. Commitments and Contingencies Legal Proceedings The Company may from time to time be party to claims and legal proceedings that arise in the normal course of its business and that may or may not have, individually or in the aggregate, a material adverse effect on its results of operations, financial condition or liquidity. Indemnification In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Under such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. In some cases, the indemnification will continue after the termination of the 19 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. In addition, the Company has entered into indemnification agreements with its directors and certain officers that may require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. To date, no demands have been made upon the Company to provide indemnification under these agreements, and thus, there are no indemnification claims that the Company is aware of that could have a material effect on the unaudited condensed consolidated balance sheets, unaudited condensed consolidated statements of operations, or unaudited condensed consolidated statements of cash flows. 8. Related Party Transaction The Company holds a minority equity interest in Brii Biosciences Offshore Limited through Brii Bio Parent. As of September 30, 2023, one member of the Company’s board of directors serves on Brii Bio Parent’s board of directors. 9. Stock-Based Awards The Company has maintained a stock incentive plan for the issuance of incentive stock options (“ISO”), non-qualified stock options (“NSO”), stock appreciation rights (“SARs”), restricted stock, other stock awards and performance cash awards, to employees, non-employee directors, and consultants. The Company also has an employee stock purchase plan (“ESPP”) for its employees or employees of any of the Company’s designated affiliates. Stock Options Granted to Employees The fair value of stock options granted to employees was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Expected term of options (in years) 6.1 6.1 5.5 - 6.1 5.3 - 6.1 Expected stock price volatility 99.9 % - 100.9 % 110.6 % - 110.8 % 99.6 % - 101.5 % 103.8 % - 111.2 % Risk-free interest rate 4.0 % - 4.4 % 3.0 % - 3.6 % 3.4 % - 4.4 % 1.6 % - 3.6 % Expected dividend yield — — — — The valuation assumptions for stock options were determined as follows: Expected Term — The expected term represents the period that the stock options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). Expected Volatility — Expected volatility is determined by using a blended approach of the Company and its industry peers’ historical volatilities. Risk-Free Interest Rate — The Company based the risk-free interest rate over the expected term of the stock options based on the constant maturity rate of U.S. Treasury securities with similar maturities as of the date of the grant. Expected Dividend Rate — The expected dividend is zero as the Company has not paid nor does it anticipate paying any dividends on its profit interest units in the foreseeable future. 20 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements Stock-Based Compensation Expense Stock-based compensation is recognized on a straight-line basis over the requisite service period, which is generally the vesting period. The following table sets forth the total stock-based compensation expense for all awards granted to employees and non-employees and the ESPP in the unaudited condensed consolidated statements of operations: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (in thousands) Research and development $ 15,819 $ 12,607 $ 46,284 $ 39,791 Selling, general and administrative 11,125 12,207 36,760 37,426 Total stock-based compensation $ 26,944 $ 24,814 $ 83,044 $ 77,217 10. Net (Loss) Income Per Share Basic net (loss) income per common share is computed by dividing the net (loss) income attributable to Vir by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted net (loss) income per common share is computed by dividing the net (loss) income attributable to Vir by the sum of the weighted-average number of common shares outstanding during the period plus any potential dilutive effects of common stock equivalents outstanding during the period calculated in accordance with the treasury stock method. For periods that the Company was in a net loss position, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common securities outstanding would have been anti-dilutive. The following is a calculation of the basic and diluted net (loss) income per share (in thousands, except share and per share data): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net (loss) income attributable to Vir $ ( 163,413 ) $ 175,312 $ ( 499,088 ) $ 617,440 Weighted-average shares outstanding, basic 134,289,620 132,729,530 133,969,878 132,422,028 Weighted-average effect of dilutive securities: Options to purchase common stock — 2,144,302 — 2,227,493 Restricted shares subject to future vesting — 75,759 — 55,080 Shares to purchase under Employee Stock Purchase Plan — 13,726 — 7,176 Weighted-average shares outstanding, diluted 134,289,620 134,963,317 133,969,878 134,711,777 Net (loss) income attributable to Vir per share, basic $ ( 1.22 ) $ 1.32 $ ( 3.73 ) $ 4.66 Net (loss) income attributable to Vir per share, diluted $ ( 1.22 ) $ 1.30 $ ( 3.73 ) $ 4.58 Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Options issued and outstanding 10,601,054 8,381,275 10,990,201 8,717,954 Restricted shares subject to future vesting 5,130,300 2,194,050 4,112,315 2,720,818 Total 15,731,354 10,575,325 15,102,516 11,438,772 21 Table of Contents VIR BIOTECHNOLOGY, INC. Notes to Unaudited Condensed Consolidated Financial Statements 11. Income Taxes The table below presents our (loss) income before benefit from (provision for) income taxes, benefit from (provision for) income taxes and effective tax rate for the three and nine months ended September 30, 2023 and 2022 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (Loss) income before benefit from (provision for) income taxes $ ( 166,626 ) $ 217,732 $ ( 507,437 ) $ 905,918 Benefit from (provision for) income taxes $ 3,213 $ ( 42,420 ) $ 8,293 $ ( 288,478 ) Effective tax rate 1.9 % 19.5 % 1.6 % 31.8 % The Company is subject to income taxes in the United States and foreign jurisdictions. These foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, the Company's effective tax rates will vary depending on the relative proportion of foreign to United States income/loss, the utilization of net operating loss and tax credit carry forwards and carrybacks, changes in jurisdictional mix of income and expense, changes in management’s assessment of matters such as the ability to realize deferred tax assets, and changes in tax laws. The benefit from income taxes for the three and nine months ended September 30, 2023 was primarily due to a pre-tax loss and the Company's ability to carry-back the research and development credit to 2022. Unrecognized tax benefits were $ 12.9 million and $ 10.6 million as of September 30, 2023 and December 31, 2022, respectively, and if recognized, would favorably affect the effective tax rate in future periods. 22 Table of Contents