Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Unless the context requires otherwise, references in this Annual Report on Form 10-K to the “Company”, “Vir,” “we,” “our” and “us” refer to Vir Biotechnology, Inc. and its consolidated subsidiaries.
Our discussion and analysis below are focused on our financial results and liquidity and capital resources for the years ended December 31, 2023 and 2022, including year-over-year comparisons of our financial performance and condition for these years. Discussion and analysis of the year ended December 31, 2021 specifically, as well as the year-over-year comparison of our financial performance and condition for the years ended December 31, 2022 and 2021, are located in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 28, 2023. For a detailed discussion on our business environment, please read Item 1. Business, included in this Annual Report on Form 10-K. For additional information on the risks that could negatively impact our business, please read Item 1A. Risk Factors, included in this Annual Report on Form 10-K.
Overview
We are an immunology company focused on combining cutting-edge technologies to treat and prevent serious infectious diseases and other serious conditions, including viral-associated diseases. At Vir, we have a bold vision – powering the immune system to transform lives. We aim to achieve this in two fundamental ways – first through developing powerful antibody therapeutics and second by generating unique T cell responses in vivo through our T cell-based viral vector platform. Our growth and pursuit of scientific innovation is fueled by our world-class leading monoclonal antibody (mAb) platform that has a proven track record and is further strengthened by our artificial intelligence-led mAb optimization and engineering capabilities.
Our current clinical development pipeline consists of product candidates targeting hepatitis delta virus (HDV), hepatitis B virus (HBV), and human immunodeficiency virus (HIV). The most advanced preclinical candidates in our pipeline include those targeting influenza A and B, coronavirus disease 2019 (COVID-19), respiratory syncytial virus (RSV) and human metapneumovirus (MPV), and human papillomavirus (HPV). We have assembled two technology platforms that modulate the immune system by exploiting critical observations of natural immune processes— a mAb discovery platform and a T cell-based viral vector platform. Additionally, Vir is evaluating a small interfering RNA (siRNA) through a collaborationwith Alnylam in our hepatitis clinical trials. We have established our own internal process development, analytical development, manufacturing, supply chain and quality capabilities and work with contract development and manufacturing organizations (CDMOs) to develop, manufacture, test and supply our early- and late-stage product candidates.
We have an industry-leading management team and board of directors with significant immunology and infectious diseases experience, including a proven track record of progressing product candidates from early-stage research through clinical development, and worldwide regulatory approval and commercialization experience. Given the global impact of infectious diseases and other serious conditions, we are committed to providing broad access to our therapeutics.
Significant Developments
Following is a summary of significant developments affecting our business that have occurred and that we have reported since the filing of our Annual Report on Form 10-K for the year ended December 31, 2022.
Pipeline Programs
Chronic Hepatitis Delta (CHD)
•In November 2023, we presented initial SOLSTICE data from a small subset of participants in a late-breaker presentation at the American Association for the Study of Liver Diseases (AASLD) The Liver Meeting.
◦After 12 weeks of combination treatment with tobevibart and elebsiran, 5 out of 6 participants achieved undetectable HDV RNA and 6 out of 6 were below the lower limit of quantification. This is the fastest decline in HDV RNA observed to date.
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•The SOLSTICE trial is ongoing with enrollment currently ahead of schedule for completion in the first quarter of 2024 due to the high level of physician and patient interest. This portion of the SOLSTICE trial is investigating the combination of tobevibart and elebsiran given every 4 weeks in one cohort and tobevibart monotherapy given every 2 weeks in another cohort. Of the 30 participants anticipated to be enrolled in each cohort, approximately 44% have compensated cirrhosis.
◦We expect to report data on a subset of participants in the second quarter of 2024: 12-week treatment data for 15 participants per regimen as well as 24-week data for 10 participants per regimen. Complete 24-week treatment data for 30 participants per regimen is expected in the fourth quarter of 2024.
•In June 2023, we presented preclinical in vivo and in vitro data demonstrating the antiviral properties of elebsiran and tobevibart 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.
Chronic Hepatitis B (CHB)
•In November 2023 we presented new MARCH Part B data at AASLD The Liver Meeting.
◦The data demonstrated an approximately three-fold higher response rate when adding tobevibart to a regimen of elebsiran with or without peginterferon after 24 weeks of treatment (15.0% for tobevibart + elebsiran + peginterferon alpha and 14.3% for tobevibart + elebsiran).
◦The MARCH Part B trial is ongoing with 48-week end of treatment data expected in the fourth quarter of 2024.
•The Phase 2 PREVAIL platform trial and its THRIVE/STRIVE sub-protocols are ongoing as of the date of this Annual Report on Form 10-K. The platform is evaluating combinations of tobevibart, elebsiran 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 2025.
HIV
•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. 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 is supported by the National Institute of Allergy and Infectious Diseases, part of the National Institutes of Health, and the Bill & Melinda Gates Foundation (BMGF), and is being conducted by the HIV Vaccine Trials Network.
◦In December 2023, Nature Medicine recognized the Phase 1 trial of VIR-1388 as one of the “11 clinical trials that will shape medicine in 2024.”
◦Initial data from the trial is expected in the second half of 2024.
•In May 2023 we reported safety and immunology data from the highest dose cohort 3 of the prototype Phase 1 trial of VIR-1111, an investigational HIV T cell vaccine based on HCMV. These data were consistent with the data from cohorts 1 and 2. Namely, no safety signals and no vector shedding or viremia were reported. In addition, no sustained HIV insert specific T cell responses were observed. The trial was funded in part by the BMGF.
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COVID-19
•In October 2023, we announced we were awarded approximately $50.0 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”).
◦$40.0 million of the total funds is part of Project NextGen, the Biden administration's program to accelerate the development of next-generation COVID-19 vaccines and treatments, and will support the development through Phase 1 of VIR-7229, a next-generation COVID antibody that has been AI-engineered to have increased potency, breadth and resistance to viral escape compared to sotrovimab. 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.
◦$10.0 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.
•In February 2023, we and GSK amended their existing agreement to reflect that:
◦We will continue to discover, develop and advance next-generation solutions for COVID-19 and other potential coronavirus outbreaks, independently or with other partners.
◦The companies will continue working together to ensure ongoing access to sotrovimab for patients around the world, where authorized, and to develop new therapies for other respiratory diseases.
Influenza A virus
•We and GSK mutually terminated the Influenza Program under the Definitive Collaboration Agreement dated May 18, 2021, effective on February 21, 2024, to reflect that Vir retains sole rights to continue advancing its investigational therapies for influenza independently or with other partners. We are actively pursuing external partnership opportunities.
•In July 2023, we reported that the Phase 2 Prevention of Illness Due to Influenza A (PENINSULA) trial evaluating VIR-2482 for the prevention of symptomatic influenza A illness did not meet primary or secondary efficacy endpoints
•The full analysis of data from the Phase 2 PENINSULA trial is expected in the second quarter of 2024 in a scientific publication. Initial post-hoc analyses have yielded the following conclusions:
◦VIR-2482’s ability to reduce cases of symptomatic flu improved 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 antibodies using our proprietary platform, which leverages dAIsYTM, an AI engine, allowing us to bring high-quality drug candidates to the clinic more efficiently.
•We expect the filing of multiple new investigational new drugs (“INDs”) in the next 12 to 24 months, including:
◦VIR-2981, an investigational neuraminidase-targeting mAb against both influenza A and B viruses.
◦VIR-8190, an investigational mAb against RSV and MPV.
◦VIR-1949, an investigational therapeutic T cell vaccine based on our HCMV vector platform that is designed to treat precancerous lesions caused by HPV.
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Corporate Update
•In December of 2023, we announced strategic imperatives to focus its capital allocation on programs with the highest potential for patient impact and value creation, which include:
◦R&D facilities in St. Louis, Missouri and Portland, Oregon will be closed in 2024. Research activities will continue at our sites in San Francisco, California and Bellinzona, Switzerland.
◦Approximately 12% or 75 positions will be eliminated, which includes reductions from our discontinuation of its small molecule group which was initiated in the third quarter of 2023. The reductions will be substantially complete by the first quarter of 2024.
•In July 2023, we made the decision to increase focus on our proprietary antibody platform and discontinue our innate immunity small molecule platform.
Leadership Update
•In October 2023, we announced the appointment of Jennifer Towne, Ph.D., as Executive Vice President and Chief Scientific Officer, effective November 6, 2023. Dr. 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.
•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 April 2023, Marianne De Backer, M.Sc., Ph.D., MBA, joined us as Chief Executive Officer (CEO) and member of the Board of Directors. Dr. De Backer has more than two decades of broad international experience, including a strong track record in global expansion, innovation technology licensing, and mergers and acquisitions. Prior to Vir, Dr. De Backer was Executive Vice President, Head of Pharmaceuticals Strategy, Business Development and Licensing/Open Innovation, and Member of the Executive Committee for Bayer Pharmaceuticals.
•In April 2023, George Scangos, Ph.D., retired from his position as CEO at Vir. He continues to provide strategic counsel to Vir as a member of the Board of Directors.
•In March 2023, Sung Lee, previously the Chief Financial Officer (CFO) and Management Board member of MorphoSys AG, became Vir’s Executive Vice President and CFO.
Financial Overview
We were incorporated in April 2016 and commenced principal operations later that year. To date, we have focused primarily on organizing and staffing our company, business planning, raising capital, identifying, acquiring, developing and in-licensing our technology platforms and product candidates, and conducting preclinical studies and clinical trials.
We have financed our operations primarily through sales of our common stock from our initial public offering, subsequent follow-on offering and convertible preferred securities, and payments received under our grant and collaboration agreements. As of December 31, 2023, we had $1.63 billion in cash, cash equivalents, and investments. Based upon our current operating plan, we believe that the $1.63 billion 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 seek additional financing to fund our long-term operations sooner than planned. See the section titled “Liquidity, Capital Resources and Capital Requirements—Funding Requirements and Conditions” below for additional information.
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Our net loss was $615.1 million for the year ended December 31, 2023, compared to net income of $515.8 million and $528.6 million for the years ended December 31, 2022 and December 31, 2021, respectively. As of December 31, 2023, we had accumulated deficit of $237.8 million. Although we recorded net income for the years ended December 31, 2022 and 2021, we have otherwise incurred net losses since inception and may continue to incur net losses in the foreseeable future.
Our primary use of our capital resources is to fund our operating expenses, which consist primarily of expenditures related to identifying, acquiring, developing, manufacturing and in-licensing our technology platforms and product candidates, conducting preclinical studies and clinical trials, and to a lesser extent, selling, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. In particular, we expect our expenses and losses to increase over time as we continue our research and development efforts, advance our product candidates through preclinical and clinical development, seek regulatory approval, and begin to prepare for commercialization. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials expenditures and our expenditures on other research and development activities.
We manufacture product candidates for three therapeutic modalities: mAbs, T cells and siRNA. We have established our own internal process development, manufacturing, supply chain and quality capabilities organizations that work with our selected CDMOs to develop, manufacture, test and supply our early- and late-stage product candidates developed with our proprietary and external technology platforms. Contract development and manufacturing of our antibody product candidates is supported by our San Francisco, California, laboratory for cell line development, process, analytical and formulation development, small-scale non-GMP manufacturing for preclinical studies and selected quality control testing. For our HCMV product candidates, our in-house capabilities for early-stage process development and HCMV research viral seed stock production will be transferred to a CDMO upon closure of our Portland, Oregon laboratory in 2024.
Our Collaboration, License and Grant Agreements
We have entered into collaboration, license and grant arrangements with various third parties. For details regarding these and other agreements, see the section titled “Business—Our Collaboration, License and Grant Agreements” and Note6 — Grant Agreements and Note 7 — Collaboration and License Agreements to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Components of Operating Results
Revenues
To date, sotrovimab has been granted emergency authorization, temporary authorization or marketing approval (under the brand name Xevudy®), and has been supplied in more than 30 countries. Although we have previously recognized revenue from our profit-share related to sotrovimabunder 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. Food and Drug Administration, orFDA, for sotrovimab, the FDA has excluded the use of sotrovimab in all U.S. regions due to the continued proportion of COVID-19 cases caused by certain Omicron subvariants. With this EUA revision, sotrovimab is not currently authorized for use in any U.S. region. Although certain countries outside the U.S. continue to maintain access to 500 mg IV while noting that the clinical efficacy is unknown or uncertain against existing and emergingvariants, we cannot predict whether other countries will further limit the use of sotrovimab. Due to the evolving COVID-19 landscape and based on discussions with the FDA, we and GSK do not plan to file a Biologics License Application, or BLA, for sotrovimab at this time. In light of these developments, we cannot predict whether (if at all) or to what extent sotrovimab may be reauthorized for use by the FDA in any U.S. region in the future, and we do not expect meaningful collaboration revenue in the future from the sale of sotrovimab for the treatment of COVID-19 even if it were reauthorized by the FDA. 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.
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Our revenues consist of the following:
Collaboration revenue includes recognition of our profit-share from the sales of sotrovimab pursuant to the 2020 GSK Agreement. Our contractual share of 72.5% from the sales of sotrovimab is applied to the net sales reported in the period by GSK, net of cost of goods sold and allowable expenses from both GSK and us (e.g., manufacturing, distribution, medical affairs, selling, and marketing expenses). In order to record collaboration revenue, we utilize certain information from our collaboration partner, including actual net product sales and costs incurred for sales activities, and make key judgments based on business updates related to commercial and clinical activities, such as expected commercial demand, commercial supply plan, manufacturing commitments, risks related to expired or obsolete inventories, and risks related to potential product returns or contract terminations. In 2024, we expect a nominal amount of collaboration revenue, if any, from our 2020 GSK Agreement, and we may incur negative collaboration revenue related to costs for ongoing required support efforts that our partner GSK leads.
Constraint on variable consideration
In May 2021, the FDA granted an EUA in the U.S. for sotrovimab. In April 2022, the FDA excluded the use of sotrovimab in all U.S. regions due to the continued proportion of COVID-19 cases caused by certain Omicron subvariants. As the lead party for all manufacturing and commercialization activities, GSK incurs all of the manufacturing, sales and marketing expenses and is the principal on sales transactions with third parties. Our accounting policy related to the profit-share is to consider the agreed-upon share of the profit-sharing amounts each quarter and evaluate whether those amounts are subject to potential future adjustments based on the latest available facts and circumstances, subject to the terms of the 2020 GSK Agreement.
As we are the agent under the 2020 GSK Agreement, we recognize our contractual share of the profit-sharing amounts or royalties (in case of an opt-out) as revenue, based on sales net of various estimated deductions such as rebates, discounts, chargebacks, credits and returns, less cost of sales and allowable expenses (including manufacturing, distribution, medical affairs, selling, and marketing expenses) in the period the sale occurs. Manufacturing costs include inventory revaluation adjustments, lower of cost or market inventory adjustments, inventory write-downs and write-offs, and binding purchase commitments with a third-party manufacturer, among other manufacturing costs. Our contractual share of the profit-sharing amounts is subject to potential future adjustments to allowable expenses, which we account for as a form of variable consideration.
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 a 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. We re-assess these estimates at each reporting period. Actual results could materially differ from estimates.
Contract revenue includes recognition of revenue generated from license rights issued to GSK, from research and development services under third-party contracts, and from a third-party clinical supply agreement.
Grant revenue is comprised of revenue derived from grant agreements with government-sponsored and private organizations.
License revenuefrom a related party is comprised of revenue related to Brii Bio’s exercise of its option to obtain exclusive rights to develop and commercialize compounds arising from tobevibart in mainland China, Hong Kong, Macau and Taiwan recognized in the year ended December 31, 2022.
Operating Expenses
Cost of Revenue
Cost of revenue currently represents royalties earned by third-party licensors on net sales of sotrovimab. We recognize these royalties as cost of revenue when we recognize the corresponding revenue that gives rise to payments due to our licensors.
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Research and Development
To date, our research and development expenses have related primarily to discovery efforts and preclinical and clinical development of our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. We do not track all research and development expenses by product candidate.
Research and development expenses consist primarily of costs incurred for our product candidates in development and prior to regulatory approval, which include:
•expenses related to license and collaboration agreements, and change in the fair value of certain contingent consideration obligations arising from business acquisitions;
•personnel-related expenses, including salaries, benefits and stock-based compensation for personnel contributing to research and development activities;
•expenses incurred under agreements with third-party contract manufacturing organizations, contract research organizations, and consultants;
•clinical costs, including laboratory supplies and costs related to compliance with regulatory requirements; and
•other allocated expenses, including expenses for rent and facilities maintenance and depreciation and amortization.
We expect our research and development expenses to increase substantially in absolute dollars over time as we advance our product candidates into and through preclinical studies and clinical trials and pursue regulatory approval of our product candidates. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates may be affected by a variety of factors including: the safety and efficacy of our product candidates, early clinical data, investment in our clinical programs, the ability of collaborators to successfully develop our licensed product candidates, competition, manufacturing capability and commercial viability.
As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate significant revenue from the commercialization and sale of any of our product candidates. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments, our ongoing assessments as to each product candidate’s commercial potential and the impact of public health epidemics, such as the COVID-19 pandemic. In addition, our existing collaborators have significant discretion in determining the efforts and resources that they will apply to our collaborations and may not pursue further development and commercialization of products resulting from our collaboration arrangements or may elect to not to continue or renew research and development programs, which would delay the development and may increase the cost of developing our product candidates and may result in a need for additional capital or a suitable replacement collaborator. For those product candidates where there is not a current collaboration arrangement in place, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured (if at all) and to what degree such arrangements will affect our development plans and capital requirements.
Our clinical development costs may vary significantly based on factors such as:
•whether a collaborator is paying for some or all of the costs;
•per patient trial costs;
•the number of trials required for approval;
•the number of sites included in the trials;
•enrollment and retention of patients in trials in countries disrupted by geopolitical events, including civil or political unrest;
•the length of time required to enroll eligible patients;
•the number of patients that participate in the trials;
•the number of doses that patients receive;
•the drop-out or discontinuation rates of patients;
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•potential additional safety monitoring requested by regulatory agencies;
•the duration of patient participation in the trials and follow-up;
•the cost and timing of manufacturing our product candidates;
•the phase of development of our product candidates; and
•the efficacy and safety profile of our product candidates.
Selling, General and Administrative
Our selling, general and administrative expenses consist primarily of personnel-related expenses for personnel in executive, finance and other administrative functions, facilities and other allocated expenses, other expenses for outside professional services, including legal, audit and accounting services, insurance costs and change in fair value of certain contingent consideration obligations arising from business acquisitions. Personnel-related expenses consist of salaries, benefits and stock-based compensation.
We expect our selling, general and administrative expenses to increase in absolute dollars over time as we continue to support our research and development activities, and commercialization activities for any of our product candidates, if approved, and to grow our business.
Change in Fair Value of Equity Investments
Change in fair value of equity investments consists of the remeasurement of our investment in Brii Biosciences Limited’s, or Brii Bio Parent, ordinary shares based on the quoted market price at each reporting date.
Interest Income
Interest income consists of interest earned on our cash, cash equivalents and investments.
Other (Expense) Income, Net
Other (expense) income, net consists of gains and losses from foreign currency transactions and the remeasurement of our contingent consideration obligation.
Benefit from (Provision for) Income Taxes
Benefit from (provision for) income taxes consists primarily of income taxes on our domestic and foreign operations.
Net Loss Attributable to Noncontrolling Interest
Net loss attributable to noncontrolling interest consists of net loss attributable to our noncontrolling interest in Encentrio Therapeutics, Inc., our subsidiary, during the three months ended March 31, 2023.
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Results of Operations
Comparison of Years Ended December 31, 2023 and 2022
The following table summarizes our results of operations for the years presented (in thousands):
Years Ended December 31,
Revenues:
License revenue from a related party — 22,289 (22,289)
Operating expenses:
Other income (loss):
Net loss attributable to noncontrolling interest $ (56) $ — $ (56)
Revenues
The decrease in collaboration revenue for the year ended December 31, 2023 compared to the same period in 2022 was due to lower profit-sharing amounts under the 2020 GSK Agreement, which was attributable to lower sales of sotrovimab as a result of the decision by the FDA in April 2022 to exclude the use of sotrovimab in all U.S. regions due to the continued proportion of COVID-19 cases caused by certain Omicron subvariants, as further described above under “Components of Operating Results—Revenues”. Collaboration revenue for the year ended December 31, 2023 consisted of $1.5 million in profit-sharing amount from the sale of sotrovimab and the release of $35.7 million profit-sharing amount previously constrained. Our release of the profit-sharing constraint and recognition of collaboration revenue was primarily driven by favorable changes in excess manufacturing commitments of sotrovimab.
The decrease in contract revenue for the year ended December 31, 2023 compared to the same period in 2022 was primarily due to the recognition of $39.8 million from deferred revenue in the third quarter of 2022 related to GSK’s selection of RSV as its first pathogen under the Additional Programs of the 2021 GSK Agreement.
The decrease in license revenue from a related party for the year ended December 31, 2023 compared to the same period in 2022 was due to Brii Bio Parent’s exercise of its option to obtain exclusive rights to develop and commercialize compounds and products arising from tobevibart in mainland China, Hong Kong, Macau and Taiwan.
The increase in grant revenue for the year ended December 31, 2023 compared to the same period in 2022 was primarily due to higher revenue recognized under our agreement with BARDA supporting the Company’s Phase 2 PENINSULA trial of VIR-2482 and, to lesser extent, higher revenue recognized related to grants received from BMGF.
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Cost of Revenue
The decrease in cost of revenue for the year ended December 31, 2023 compared to the same period in 2022 was due to lower third-party royalties owed based on the lower sales of sotrovimab under the 2020 GSK Agreement.
Research and Development Expenses
The following table shows the primary components of our research and development expenses for the years presented (in thousands):
Years Ended December 31,
Licenses, collaborations and contingent consideration 30,215 54,087 (23,872)
The increase in research and development expenses for the year ended December 31, 2023 compared to the same period in 2022 was primarily due to the following factors:
•the increase in contract manufacturing expenses was primarily related to studies involving VIR-2482 and, to a lesser extent, elebsiran, tobevibart, and VIR-7229;
•the increase in personnel-related expenses was primarily attributable to supporting the advancement of our clinical programs and severance and other personnel related costs incurred in connection with strategic steps to reduce operating expenses adopted in 2023; and
•the increase in other research and development expenses was primarily attributable to non-cash impairment charges associated with certain non-prioritized in-process research and development assets, facilities related costs including depreciation, other costs due to an increase in our personnel, and non-cash impairment charges associated with the discontinuation of the Company’s small molecule platform.
partially offset by
•the decrease in licenses, collaborations and contingent consideration expenses primarily attributable to lower costs under our collaboration arrangements with GSK and other R&D collaborators, and lower expenses associated with the change in fair value of the contingent consideration obligation from our acquisition of Humabs Biomed SA.
Selling, General and Administrative Expenses
The increase in selling, general and administrative expenses for the year ended December 31, 2023 compared to the same period in 2022 was primarily due to higher personnel related costs to support the growth of the Company.
Change in Fair Value of Equity Investments
Our equity investment consisted solely of shares of Brii Bio Parent, which is a marketable equity investment and remeasured to fair value at each reporting period. For the year ended December 31, 2023, we recognized an unrealized loss of $21.9 million due to the change in fair value, compared to an unrealized loss of $111.1 million for the same period in 2022.
Interest Income
The increase in interest income was primarily due to higher interest rates as well as higher balances of short-term and long-term investments for the year ended December 31, 2023 compared to the same period in 2022.
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Other (Expense) Income, Net
The decrease in other (expense) income, net for the year ended December 31, 2023 compared to the same period in 2022 was primarily due to higher foreign exchange measurement losses related to the accrued liability recognized in connection with the profit-sharing amount constrained under the 2020 GSK Agreement and lower income associated with the decrease in the fair value of the contingent consideration obligation from our acquisition of TomegaVax.
Benefit from (Provision for) Income Taxes
The benefit from income taxes for the year ended December 31, 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 year ended December 31, 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
Sources of Liquidity
To date, we have financed our operations primarily through sales of our common stock from our initial public offering and subsequent follow-on offering, sales of our convertible preferred securities, and payments received under our grant and collaboration agreements. As of December 31, 2023, we had $1.63 billion in cash, cash equivalents, and investments. As of December 31, 2023, we had accumulated deficits of $237.8 million. In November 2023, we entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC, as sales agent (“TD Cowen”), pursuant to 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 TD Cowen, acting as sales agent or principal. The shares will be offered and sold under the shelf registration statement on Form S-3 and a related prospectus that we filed with the SEC on November 3, 2023. We will pay TD 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 TD Cowen with customary indemnification and contribution rights. As of December 31, 2023, no shares have been issued under the Sales Agreement.
Funding Requirements and Conditions
Our primary use of our capital resources is to fund our operating expenses, which consist primarily of expenditures related to identifying, acquiring, developing, manufacturing and in-licensing our technology platforms and product candidates, and conducting preclinical studies and clinical trials, and to a lesser extent, selling, general and administrative expenditures.
We have not obtained regulatory approval for any product candidates other than sotrovimab, and we do not expect to generate significant revenue from the sale of our other product candidates until we complete clinical development, submit regulatory filings and receive approvals from the applicable regulatory bodies for such product candidates, if ever. We may continue to incur net losses for the foreseeable future. Based upon our current operating plan, we believe that our existing cash, cash equivalents and investments as of December 31, 2023 as noted above will enable us to fund our operations for at least the next 12 months from the filing date of this Annual Report on Form 10-K.
However, our operating plan may change as a result of many factors currently unknown to us, and we may need to raise additional capital to complete the development and commercialization of our product candidates and fund certain of our existing manufacturing and other commitments. We expect to finance our cash needs through public or private equity or debt financings, third-party (including government) funding and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. See the sections titled “Risk Factors—Risks Related to Our Financial Position and Capital Needs—Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our product candidates.” and “Risk Factors—Risks Related to Our Financial Position and Capital Needs—We may require substantial additional funding to finance our operations. If we are unable to raise capital when needed, we could be forced to delay, reduce or terminate certain of our development programs or other operations” for a description of the risks that may be associated with any future capital raises.
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We have based our projections of operating capital requirements on assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of biotechnology products, we are unable to estimate the exact amount of our operating capital requirements. See the section titled “Risk Factors—Risks Related to Our Financial Position and Capital Needs” for a description of certain risks that will affect our future capital requirements.
We have various operating lease arrangements for office and laboratory spaces located in California, Oregon, Missouri and Switzerland with contractual lease periods expiring between 2024 and 2033. As of December 31, 2023, we expect to make total lease payments of $156.4 million through 2033.
To date, we have entered into collaboration, license and acquisition agreements where the payment obligations are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones, and we are required to make royalty payments in connection with the sale of products developed under those agreements. For additional information regarding these agreements, including our payment obligations thereunder, see the sections titled “Business—Our Collaboration, License and Grant Agreements,” as well as Note 4—Acquisitions and Note 7—Collaboration and License Agreements to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. For information related to our future commitments under our facilities and manufacturing agreements, see Note 10—Commitments and Contingencies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
Years Ended December 31,
Net cash (used in) provided by:
Operating Activities
Cash used in operating activities after adjustments for non-cash items decreased in 2023 primarily due to lower collaboration revenue from the sales of sotrovimab as part of the 2020 GSK Agreement and payments made to GSK related to previously reserved excess sotrovimab supply and binding reserved manufacturing capacity not utilized. The non-cash charges of $140.9 million primarily consisted of $111.3 million for stock-based compensation expense and an unrealized loss of $21.9 million on our equity investment.
Cash provided by operating activities after adjustments for non-cash items increased in 2022 primarily due to higher collaboration revenue from the sales of sotrovimab as part of the 2020 GSK Agreement, partially offset by $93.8 million for payment for contingent consideration in excess of acquisition date fair value. The non-cash charges of $575.9 million primarily consisted of $369.5 million for change in estimated constraint on profit-sharing amount, an unrealized loss of $111.1 million on our equity investment, and $102.1 million for stock-based compensation expense.
Investing Activities
Cash provided by investing activities during 2023 was primarily due to $2.2 billion in proceeds received from investments that matured or sold during the period, partially offset by purchases of investments of $2.0 billion and property and equipment of $21.6 million.
Cash used in investing activities during 2022 was primarily due to purchases of investments of $1.5 billion and property and equipment of $68.0 million, partially offset by $351.5 million in proceeds received from investments that matured during the period.
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Financing Activities
Cash provided by financing activities during 2023 was primarily due to of proceeds from the issuance of common stock under our employee stock purchase plan of $4.3 million and exercises of stock options of $3.5 million.
Cash provided by financing activities in 2022 was primarily due to proceeds from the issuance of our common stock to BMGF of $28.5 million under the stock purchase agreement, from exercises of stock options of $4.5 million, and from issuance of common stock under our employee stock purchase plan of $3.2 million, partially offset by $1.2 million for payment of contingent consideration.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. The critical accounting policies, estimates and judgments that we believe to have the most significant impacts on our consolidated financial statements are described below. For more detail on our critical accounting policies, refer to Note 2—Summary of Significant Accounting Policies to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Accrued R&D expenses
We expense all research and development costs in the periods in which they are incurred. Clinical development costs compose a significant component of research and development costs. We typically contract with third parties, including contract research organizations (“CROs”) and CDMOs to conduct and manage preclinical studies and clinical trials, research services, and clinical manufacturing services on our behalf. When billing terms under these contracts do not coincide with the timing of when the work is performed, we estimate our obligations for services provided but not yet billed as of the period end based on a number of factors that include, but are not limited to, our knowledge of the research and development programs and clinical manufacturing activities, the status of the programs and activities, invoicing to date, and the provisions in the contracts. We obtain information regarding unbilled services directly from outside service providers and perform procedures to support our estimates based on our internal understanding of the services provided to date. However, we may also be required to estimate these services based on information available to our internal clinical and manufacturing administrative staff if such information is not able to be obtained timely from our service providers. Accrued R&D expenses are included in accrued and other liabilities on the consolidated balance sheets. In the event that advance payments are made to a CRO, CDMO or other outside service providers, the payments are recorded within prepaid expenses and other current assets and other assets on the consolidated balance sheet and subsequently recognized as research and development expense when the associated services are performed. The status and timing of actual services performed may vary from our estimates, resulting in adjustments to expense in future periods. Changes in these estimates could materially affect our results of operations.
Contingent Consideration
Contingent consideration related to business combinations is considered to be Level 3 instruments that are initially measured at their estimated fair values on the transaction date and subsequently remeasured with changes recorded in the consolidated statement of operations each subsequent reporting period.
The estimated fair value of the contingent consideration related to the Humabs acquisition is determined by calculating the probability-weighted clinical and regulatory milestone payments based on the assessment of the likelihood and estimated timing that certain milestones will be achieved, as well as use of a Monte Carlo simulation model that includes significant estimates and assumptions pertaining to commercialization events and sales targets. The most significant unobservable inputs are the probabilities of achieving clinical and regulatory approval of the development projects and the subsequent commercial success and discount rates.
Recent Accounting Pronouncements Not Yet Adopted
See Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition or results of operations.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rate and market price sensitivities.
Interest Rate Risk
We had cash, cash equivalents and restricted cash and cash equivalents of $261.3 million as of December 31, 2023, which primarily consisted of money market funds. We also had short-term and long-term investments of $1.38 billion as of December 31, 2023. The primary objective of our investment activities is to preserve capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. Because our investments are primarily short-term in duration and our holdings in U.S. government treasury bonds mature prior to our expected need for liquidity, we believe that our exposure to interest rate risk is not material, and one percent movement in market interest rates would not have a material impact on the total value of our portfolio. We had no debt outstanding as of December 31, 2023.
Foreign Currency
The functional currency of our foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at period-end exchange rates and non-monetary assets and liabilities are translated to U.S. dollars using historical exchange rates. Revenue and expenses are translated at average rates throughout the respective periods. As of the date of this Annual Report on Form 10-K, we are exposed to foreign currency risk primarily related to the operations of our Swiss and Australian subsidiaries and our collaboration with GSK and consequently the Swiss Franc, Australian dollar and British pound. Transaction gains and losses are included in other (expense) income, net on the consolidated statements of operations and were not material for the years ended December 31, 2023, 2022 and 2021.
Equity Investment Risk
We hold ordinary shares of Brii Bio Parent, which we acquired in connection with our collaboration, option and license agreement. These equity securities are measured at fair value with any changes in fair value recognized in our consolidated statements of operations. The fair value of these equity securities was approximately $9.9 million as of December 31, 2023. Changes in the fair value of these equity securities are impacted by the volatility of the stock market and changes in general economic conditions, among other factors. A hypothetical 10% increase or decrease in the stock prices of these equity securities would increase or decrease their fair value as of December 31, 2023 by approximately $1.0 million.
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Item 8. Financial Statements and Supplementary Data.
Audited Consolidated Financial Statements Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 112
Notes to Consolidated Financial Statements 120
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Vir Biotechnology, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Vir Biotechnology, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
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Expense accruals for clinical trials
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2017.
San Mateo, California
February 26, 2024
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VIR BIOTECHNOLOGY, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
ASSETS
CURRENT ASSETS:
Restricted cash and cash equivalents, current 13,268 12,681
Prepaid expenses and other current assets 52,549 104,356
Restricted cash and cash equivalents, noncurrent 6,448 6,656
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY:
Accumulated other comprehensive loss (815) (9,122)
The accompanying notes are an integral part of these consolidated financial statements.
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VIR BIOTECHNOLOGY, INC.
Consolidated Statements of Operations
(in thousands, except share and per share data)
Years Ended December 31,
Revenues:
License revenue from a related party — 22,289 —
Operating expenses:
Other income (loss):
Net loss attributable to noncontrolling interest $ (56) $ — $ —
Net (loss) income per share attributable to Vir, basic $ (4.59) $ 3.89 $ 4.07
Net (loss) income per share attributable to Vir, diluted $ (4.59) $ 3.83 $ 3.96
The accompanying notes are an integral part of these consolidated financial statements.
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VIR BIOTECHNOLOGY, INC.
Consolidated Statements of Comprehensive (Loss) Income
(in thousands)
Years Ended December 31,
Other comprehensive income (loss):
Unrealized gain (loss) on investments 9,310 (7,524) (957)
Total other comprehensive income (loss) 8,307 (8,023) 179
Comprehensive loss attributable to noncontrolling interest $ (56) $ — $ —
The accompanying notes are an integral part of these consolidated financial statements.
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VIR BIOTECHNOLOGY, INC.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
Vir Stockholders' Equity
Share Amount
Vesting of restricted common stock 89,261 — — — — — —
Other comprehensive income — — — 179 — — 179
Vesting of restricted common stock 349,496 — — — — — —
Other comprehensive loss — — — (8,023) — — (8,023)
Vesting of restricted common stock 734,662 — — — — — —
Other comprehensive income — — — 8,307 — — 8,307
Contributions from noncontrolling interest owners — — — — — 100 100
Increase in ownership interest in a subsidiary — — (56) — — (44) (100)
The accompanying notes are an integral part of these consolidated financial statements.
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VIR BIOTECHNOLOGY, INC.
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Changes in estimated constraint on profit-sharing amount (28,118) 369,535 —
Accretion of discounts on investments, net (8,706) (8,943) (244)
Change in estimated fair value of contingent consideration 1,024 2,115 91,848
In-process research and development impairment 9,658 — —
Long-lived assets impairment and disposal loss 7,662 — —
Gain from a sublease termination — — (4,844)
Changes in operating assets and liabilities:
CASH FLOWS FROM INVESTING ACTIVITIES:
The accompanying notes are an integral part of these consolidated financial statements.
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VIR BIOTECHNOLOGY, INC.
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31,
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of principal on financing lease obligations (287) (260) (259)
Contributions from noncontrolling interest owners 100 — —
Increase in ownership interest in a subsidiary (100) — —
Payment of contingent consideration — (1,197) —
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Net refund received (cash paid) for income tax $ 2,676 $ (252,030) $ —
Restricted cash and cash equivalents, noncurrent 6,448 6,656 7,006
The accompanying notes are an integral part of these consolidated financial statements.
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VIR BIOTECHNOLOGY, INC.
Notes to Consolidated Financial Statements
1. Organization
Vir Biotechnology, Inc. (“Vir” or the “Company”) is an immunology company focused powering the immune system to transform lives by treating and preventing infectious diseases and other serious conditions, including viral-associated diseases. Vir has assembled two technology platforms that are designed to modulate the immune system by exploiting critical observations of natural immune processes. Its current clinical development pipeline consists of product candidates targeting hepatitis delta virus (“HDV”), hepatitis B virus (“HBV”), 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 September 2022, the Company formed a new wholly-owned subsidiary in Switzerland, Vir Biotechnology International GmbH (“VBI”), a Swiss limited liability company. The primary purpose of VBI is to support Vir's research and development and international commercial activities outside of the United States.
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.
Sales Agreement
In November 2023, the Company entered into a sales agreement (“Sales Agreement”) with Cowen and Company, LLC, as sales agent (“TD Cowen”), pursuant to 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 TD 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 (“SEC”) on November 3, 2023. The Company will pay TD 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 TD Cowen with customary indemnification and contribution rights. As of December 31, 2023, no shares have been issued under the Sales Agreement.
Need for Additional Capital
Although the Company recorded net income for the years ended December 31, 2022 and 2021, it has otherwise incurred net losses since inception. The Company expects its earnings to be volatile and may continue to incur net losses over the next several years and may need to raise additional capital to fully implement its business plan. As of December 31, 2023, the Company had accumulated deficit of $237.8 million. The Company had $1.63 billion in cash, cash equivalents, and investments as of December 31, 2023. Based on the Company’s current operating plan, management believes that the $1.63 billion as of December 31, 2023 will be sufficient to fund its operations through at least the next 12 months from the issuance date of these consolidated financial statements.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented. The consolidated financial statements include the accounts of Vir and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.
Foreign Currency
The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of foreign subsidiaries are translated into U.S. dollars at period-end exchange rates, and non-monetary assets and liabilities are translated to U.S. dollars using historical exchange rates. Revenue and expenses are translated at average exchange rates throughout the respective periods. Transaction gains and losses are included in other (expense) income, net on the consolidated statements of operations.
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VIR BIOTECHNOLOGY, INC.
Notes to Consolidated Financial Statements
Use of Estimates
The preparation of the 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 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.
Segments
The Company operates as one reportable segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for purposes of allocating resources.
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. The Company has not experienced any losses on its deposits of cash and cash equivalents. 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 third-party financial institutions.
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 consolidated balance sheets. As of December 31, 2023 and 2022, 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. There was no allowance for losses on available-for-sale debt securities attributable to credit risk as of December 31, 2023 and 2022.
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VIR BIOTECHNOLOGY, INC.
Notes to Consolidated Financial Statements
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents, which consist of amounts invested primarily in money market funds and are stated at fair value.
Investments
Investments include available-for-sale debt securities and equity investments, which are carried at fair value.
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 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 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 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 (expense) income, net on the 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.
Property and Equipment, Net
Property and equipment are stated at cost, net of accumulated depreciation and amortization and, if applicable, impairment charges. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized over the lesser of their useful lives or the remaining life of the lease. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the balance sheet, and the resulting gain or loss is reflected in operations in the period realized. Maintenance and repairs are charged to operations as incurred.
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (group) may not be recoverable. Recoverability is measured by comparing the carrying amount to the future net undiscounted cash flows that the asset (group) is expected to generate. If such asset (group) is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset (group) exceeds its fair value projected discounted future net cash flows arising from the asset (group).
Acquired Intangible Assets
The Company’s intangible assets were acquired via business combinations or asset acquisitions.
Indefinite-lived intangible assets represent the estimated fair value assigned to in-process research and development (“IPR&D”) acquired in a business combination. The Company reviews indefinite-lived intangible assets for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value of the assets might not be recoverable. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, then it is written down to its fair value.
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Notes to Consolidated Financial Statements
For IPR&D, if a product candidate derived from the indefinite-lived intangible asset is commercialized, the useful life will be determined, and the carrying value will be amortized prospectively over that estimated useful life. Alternatively, if a product candidate is abandoned, the carrying value of the intangible asset will be charged to research and development expenses. IPR&D assets acquired as part of an asset acquisition are recorded at cost and expensed immediately if they have no alternative future uses.
Finite-lived intangible assets acquired in a business combination are initially recognized at their fair value at the acquisition date. Finite-lived intangible assets acquired in an asset acquisition are initially recognized at cost. Amortization is computed using the straight-line method over the estimated useful lives of the respective finite-lived intangible assets, generally seven to 15 years. Finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (group) may not be recoverable, like that of property and equipment.
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and intangible assets acquired in a business combination. The Company tests goodwill for impairment at least annually or more frequently if events or changes in circumstances indicate that this asset may be impaired.
In testing for goodwill impairment, the Company has the option of first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the Company elects to bypass the qualitative assessment, or if a qualitative assessment indicates it is more likely than not that the carrying value exceeds its fair value, the Company performs a quantitative goodwill impairment test to compare the fair value of its reporting unit to its carrying value, including goodwill. If the carrying value, including goodwill, exceeds the reporting unit’s fair value, the Company will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value (but not in excess of the carrying value of goodwill).
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 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 will not result in a significant reversal of cumulative revenues recognized in future reporting periods.
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Notes to 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 and development 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, and 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.
Research and Development Expenses
To date, research and development expenses have related primarily to discovery efforts and preclinical and clinical development of 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 include expenses related to license and collaboration agreements; contingent consideration from business acquisitions; personnel-related expenses, including salaries, benefits, and stock-based compensation for personnel contributing to research and development activities; expenses incurred under agreements with third-party contract manufacturing organizations, contract research organizations, and consultants; clinical costs, including laboratory supplies and costs related to compliance with regulatory requirements; and other allocated expenses, including expenses for rent, facilities maintenance, and depreciation and amortization.
The Company has acquired and may continue to acquire the rights to develop and commercialize new product candidates from third parties. Upfront payments and research and development milestone payments made in connection with acquired licenses or product rights are expensed as incurred, provided that they do not relate to a regulatory approval milestone or assets acquired in a business combination.
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Notes to Consolidated Financial Statements
The Company’s expense accruals for clinical trials and manufacturing are based on estimates of contracted services provided by third-party vendors not yet billed. When billing terms under these contracts do not coincide with the timing of when the work is performed, the Company is required to make estimates of its outstanding obligations to those third parties as of the period end. The accrual estimates are based on a number of factors, including the Company’s knowledge of the research and development programs and clinical manufacturing activities, the status of the programs and activities, invoicing to date, and the provisions in the contracts. The Company obtains information regarding unbilled services directly from these service providers and performs procedures to support its estimates based on its internal understanding of the services provided to date. However, the Company may also be required to estimate these services based on information available to its internal clinical and manufacturing administrative staff if such information is not able to be obtained timely from its service providers.
Stock-based Compensation
The Company recognizes stock-based compensation to employees over the requisite service period based on the grant-date fair value of the awards. The Company calculates the estimated fair value of stock options and employees’ purchase rights under the Company’ 2019 employee stock purchase plan (“ESPP”) using the Black-Scholes valuation model, which requires the use of subjective assumptions including volatility and expected term, among others. The fair value of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) is based on the market value of the Company’s common stock on the date of grant. Stock-based compensation is recognized using the straight-line method for awards that vest only upon the employee’s or non-employee’s continued service to the Company. Stock-based compensation expense of the employees' purchase rights under the ESPP is recognized over the offering period. Forfeitures are recognized as they occur.
Acquisitions
Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method, assets acquired, including IPR&D projects, and liabilities assumed are recorded at their respective fair values as of the acquisition date. Any excess fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill. Contingent consideration obligations incurred in connection with the business combination are recorded at their fair values on the acquisition date, are remeasured each subsequent reporting period until the related contingencies are resolved and are classified as contingent consideration on the 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.
When the Company determines that an entity acquired does not meet the definition of a business, the transaction is accounted for as an acquisition of assets. Therefore, the consideration paid to acquire IPR&D is expensed, and no goodwill is recorded. Any contingent consideration is generally recognized only when it becomes payable or is paid.
Leases
In accordance with ASC 842, Leases, the Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial direct costs incurred, as applicable. On the lease commencement date, the Company estimates and includes in its lease payments any lease incentive amounts based on future events when (1) the events are within the Company’s control and (2) the event triggering the right to receive the incentive is deemed reasonably certain to occur. If the lease incentive received is greater or less than the amount recognized at lease commencement, the Company recognizes the difference as an adjustment to ROU asset and/or lease liability, as applicable.
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Notes to Consolidated Financial Statements
As the implicit rate in the Company’s leases is generally unknown, the Company uses an incremental borrowing rate estimated based on the information available at the lease commencement date in determining the present value of future lease payments. When calculating its estimated incremental borrowing rates, the Company considers its credit risk, the lease term, the total lease payments and the impact of collateral, as necessary. The lease terms may include options to extend or terminate the lease when the Company is reasonably certain it will exercise such options. ROU assets and lease liabilities are remeasured upon certain modifications to leases using the present value of remaining lease payments and estimated incremental borrowing rate upon lease modification. Rent expense for the Company’s operating leases is recognized on a straight-line basis within operating expenses over the reasonably assured lease term.
The Company elected to not separate lease and non-lease components for any leases within its existing classes of assets and, as a result, accounts for the lease and non-lease components as a single lease component. The Company also elected to not apply the recognition requirement to any leases within its existing classes of assets with a term of 12 months or less.
ROU assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (group) may not be recoverable, like that of property and equipment.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. Deferred income tax assets and liabilities are determined based on the differences between the financial statement reporting and tax bases of assets and liabilities and net operating losses and credit carryforwards and are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. Deferred income tax assets are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of the tax benefits will not be realized.
The Company’s tax positions are subject to income tax audits. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is more likely than not to be realized upon settlement with the taxing authority. The Company evaluates uncertain tax positions on a regular basis. The evaluations are based on several factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of the audit, and effective settlement of audit issues. The provision for income taxes includes the effects of any accruals that the Company believes are appropriate, as well as any related net interest and penalties.
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.
New Accounting Pronouncement Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the impact the adoption of ASU 2023-09 may have on its consolidated financial statements and related disclosures.
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Notes to 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 by level within the fair value hierarchy (in thousands):
Assets:
Equity securities Level 1 N/A N/A N/A 9,853
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(1)Includes $19.7 million of restricted cash equivalents.
Assets:
Equity securities Level 1 N/A N/A N/A $ 31,892
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(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 consolidated balance sheets. Accrued interest receivable amounted to $4.0 million and $2.5 million as of December 31, 2023 and 2022, respectively. The Company did not write off any accrued interest receivable during the years ended December 31, 2023, 2022 and 2021.
The Company recognized total net unrealized gain of $0.9 million and total net unrealized loss of $8.4 million in accumulated other comprehensive loss as of December 31, 2023 and 2022, respectively. The gross unrealized losses as of December 31, 2023 and 2022 were due to changes in interest rates. The Company determined that the gross unrealized losses on our investments as of December 31, 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 December 31, 2023, no securities have contractual maturities of longer than two years.
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Notes to Consolidated Financial Statements
As of December 31, 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 measured at fair value at each reporting date. As of December 31, 2023, the Company remeasured the equity investment at a fair value of $9.9 million. For the years ended December 31, 2023, 2022 and 2021, the Company recognized an unrealized (loss) income of $(21.9) million, $(111.1) million and $138.0 million, respectively, as other income (loss) in the consolidated statements of operations. For the years ended December 31, 2023, 2022 and 2021, the unrealized loss related to foreign currency translation were immaterial.
Contingent Consideration
Contingent consideration primarily includes potential milestone payments in connection with the acquisitions of Humabs BioMed SA (“Humabs”). See further discussion in Note 4—Acquisitions. The Company classifies the contingent consideration as Level 3 financial liabilities within the fair value hierarchy as of December 31, 2023 and 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 December 31, 2023, the Company calculated the estimated fair value of the remaining clinical and regulatory milestones related to tobevibart (formerly as VIR-3434) using the following significant unobservable inputs:
Unobservable input Range(Weighted-Average)1
Probability of achievement 14.4% - 60.0% (42.9%)
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(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 because of the availability of discrete revenue forecasts. As of December 31, 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 tobevibart:
Unobservable input Value
Volatility 70.0%
Discount rate 10.0%
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 December 31, 2023 and 2022, the estimated fair value of the contingent consideration related to the Humabs acquisition was $26.0 million and $23.4 million, respectively, with changes in the estimated fair value recorded in research and development expenses in the consolidated statements of operations based on the nature of the relevant underlying activities. The estimated fair value of the contingent consideration related to the Humabs acquisition involves significant estimates and assumptions which give rise to measurement uncertainty.
The following table sets forth the changes in the estimated fair value of the Company’s contingent consideration (in thousands):
ContingentConsideration
Changes in fair value 1,024
4. Acquisitions
In August 2017, the Company acquired all of the outstanding equity of Humabs, a private Swiss company, which discovers and develops monoclonal antibodies (“mAbs”) derived from individuals whose immune systems have successfully responded to major diseases.
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Notes to Consolidated Financial Statements
The Company acquired all of Humabs’ rights, title and interest in and to substantially all of the assets of Humabs except for rights under certain license agreements with third parties. The Company is obligated to pass through to the former Humabs shareholders any amounts received by Humabs under such license agreements, net of any program expenses. The transaction was accounted for as an acquisition of a business. In addition to the cash payment and issuance of common stock to the former Humabs shareholders at the acquisition date, the Company also agreed to pay additional amounts in cash upon the achievement of specified milestone events: (i) up to $135.0 million upon the achievement of clinical, regulatory and commercial milestones for tobevibart; and (ii) up to $105.0 million upon the achievement of clinical, regulatory and commercial milestones for another product, which the Company elected as sotrovimab, a severe acute respiratory syndrome coronavirus 2 (“SARS-CoV-2”) product. During the year ended December 31, 2020, the Company achieved two of the specified clinical milestones for tobevibart and sotrovimab totaling $20.0 million. During the year ended December 31, 2021, the Company achieved the specified regulatory milestone of $35.0 million and sales milestones totaling $60.0 million related to sotrovimab. The estimated fair value of the remaining contingent consideration was $26.0 million as of December 31, 2023.
The acquired developed technologies that have associated patents issued are classified as finite-lived intangible assets and are amortized on a straight-lined basis over their estimated remaining useful lives, generally between seven to 12 years. The Company also acquired indefinite-lived intangible assets consisting of IPR&D. These assets will not be amortized until regulatory approval is obtained in a major market. At that time, the Company will determine the useful life of the asset and begin amortization. If the associated research and development effort is abandoned or otherwise impaired, the related IPR&D assets will be written-off, and an impairment charge will be recorded.
5. Goodwill and Intangible assets
Goodwill
Goodwill of $16.9 million represents the excess of the purchase price over the estimated fair value of the net assets acquired from Humabs. There was no impairment for the years ended December 31, 2023, 2022 and 2021.
Intangible Assets
The following table summarizes the carrying amount of the finite-lived intangible assets (in thousands):
December 31, Weighted-Average Remaining Useful Life (Years)
Finite-lived intangible assets, gross 4,762 4,762
Less accumulated amortization (3,270) (2,738)
Finite-lived intangible assets, net $ 1,492 $ 2,024
The contract-based intangible asset resulted from the product approval of a sublicensed intellectual property right in December 2020. The intellectual property right was previously accounted for as IPR&D. Amortization expense related to finite-lived intangible assets, included in research and development expenses on the consolidated statements of operations, totaled $0.5 million, $0.5 million and $0.5 million for the years ended December 31, 2023, 2022 and 2021, respectively. There was no impairment for the years ended December 31, 2023, 2022 and 2021.
Based on the finite-lived intangible assets recorded as of December 31, 2023, the estimated future amortization expense for the next five years is as follows (in thousands):
Years Ending December 31:
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Notes to Consolidated Financial Statements
Indefinite-Lived Intangible Assets
As of December 31, 2023 and 2022, the Company had indefinite-lived intangible assets of $21.1 million and $30.7 million, respectively, related to the purchased IPR&D from the Humabs acquisition. For the year ended December 31, 2023, $9.7 million impairment losses were recorded as part of research and development expenses for abandoned IPR&D assets related to non-prioritized research programs. No impairment losses had been recorded for the years ended December 31, 2022 and 2021.
6. Grant Agreements
Bill & Melinda Gates Foundation Grants
The Company has entered into various grant agreements with the Bill & Melinda Gates Foundation (“BMGF”), under which it was awarded grants totaling up to $49.9 million to support its HIV vaccine program, tuberculosis vaccine program, HIV vaccinal antibody program and malaria vaccinal antibody program. The term of the grant agreements will expire at various dates through June 2027, unless earlier terminated by the BMGF 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 BMGF reasonably believes may threaten the success of the project.
Concurrently with the execution of the grant agreement for the vaccinal antibody program, the Company entered into a stock purchase agreement with the BMGF, under which the BMGF 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 BMGF 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 BMGF based on its fair market value on the closing date and determined that the premium paid by the BMGF 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 $13.3 million, $8.6 million, and $8.2 million for the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023 and 2022, the Company had deferred revenue of $13.1 million and $15.5 million, respectively. As of December 31, 2023 and 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 BMGF.
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 (September 2022 to January 2026) 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 VIR-2482 for the prevention of influenza illness or possibly supporting medical countermeasures for other pathogens of pandemic potential.
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Notes to Consolidated Financial Statements
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 related to BARDA of $33.4 million and $26.4 million for the years ended December 31, 2023 and 2022, respectively, and other receivables in prepaid expenses and other current assets of $7.6 million and $26.4 million as of December 31, 2023 and 2022, respectively. As of December 31, 2023, $56.5 million of potential future reimbursement remains available out of $116.3 million total awarded amount under the Amended BARDA Agreement.
7. 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.
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Notes to 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 will 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 a constraint on its cumulative profit-sharing amounts. For the year ended December 31, 2023, the Company paid GSK $341.4 million 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 assessment of profit-sharing amounts to be constrained. As of December 31, 2023, the accrued liability balance for the Company’s share of the remaining estimated manufacturing expenses related to excess sotrovimab supply and binding reserved manufacturing capacity not utilized is immaterial. The Company re-assesses these estimates each reporting period.
During the years ended December 31, 2023, 2022, and 2021, the Company recorded profit-sharing amounts, profit-sharing amounts constrained, and profit-sharing amounts previously constrained, released as components of collaboration revenue in the consolidated statements of operations, as follows (in thousands):
Years Ended December 31,
Collaboration revenue, net
Profit-sharing amount constrained — (369,678) —
Profit-sharing amount previously constrained, released 35,730 — —
Costs associated with co-development activities performed under the 2020 GSK Agreement are included in research and development expenses on the 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 $23.4 million, $31.4 million, and $77.3 million during the years ended December 31, 2023, 2022, and 2021, respectively.
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Notes to Consolidated Financial Statements
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 mAbs for the prevention, treatment or prophylaxis of the influenza virus (the “Influenza Program”), excluding VIR-2482 unless GSK exercises its exclusive option to co-develop and commercialize after the Company completes a Phase 2 clinical trial; (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”).
On February 21, 2024, the Company and GSK entered into a letter agreement (the “Letter Agreement”)pursuant to which the Company and GSK agreed to remove the Influenza Program from the 2021 GSK Agreement and to wind down and terminate the cost-sharing arrangements and all ongoing activities in relation to the Influenza Program. As of the effective date of the Letter Agreement, 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.
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 and can select up to two additional non-influenza target pathogens prior to March 25, 2024.
The parties share 50% of all development costs in accordance with the budget for each of the collaboration programs (other than for VIR-2482). The parties also share 50% of all profits and losses arising from any collaboration product.
As of December 31, 2023, the total unrecognized transaction price of $51.7 million is classified as current deferred revenue on the Company's consolidated balance sheet related to the remaining performance obligations, being the material rights to select up to two additional non-influenza target pathogens under the Additional Programs.
Costs associated with co-development activities performed under the 2021 GSK Agreement are included in research and development expenses in the consolidated statements of operations, with any reimbursement of costs by GSK reflected as a reduction of such expenses.
During the years ended December 31, 2023, 2022, and 2021, the Company recognized additional net research and development expenses of $2.2 million, $2.3 million and $0.5 million, respectively. During the year ended December 31, 2022, the Company recognized the $39.8 million as contract revenue related to GSK’s selection of RSV as its first pathogen under the Additional Programs.
Brii Biosciences
In 2018, the Company entered into a collaboration, option and license agreement (the “Brii Agreement”) with Brii Bio Parent and Brii Bio, pursuant to which the Company granted to Brii Bio, with respect to up to four of the Company’s programs, an exclusive option to obtain exclusive rights to develop and commercialize compounds and products arising from such programs in China, Taiwan, Hong Kong and Macau (collectively, the “China Territory”) for the treatment, palliation, diagnosis, prevention or cure of acute and chronic diseases of infectious pathogen origin or hosted by pathogen infection (the “Field of Use”). To date, Brii Bio has opted in for elebsiran (formerly as VIR-2218) and tobevibart to develop and commercialize in the China Territory under the Brii Agreement. In partial consideration for the options granted by the Company to Brii Bio, Brii Bio Parent and Brii Bio granted the Company, with respect to up to four of Brii Bio Parent’s or Brii Bio’s programs, an exclusive option to be granted exclusive rights to develop and commercialize compounds and products arising from such Brii Bio programs in the United States for the Field of Use. To date, the Company has not exercised any of its options.
In July 2022, Brii Bio exercised its option to obtain exclusive rights to develop and commercialize compounds and products arising from tobevibart in the China Territory. In consideration of the Company’s grant to Brii Bio of an exclusive license related to tobevibart in the China Territory, the Company received a $20.0 million option exercise fee in connection with the option exercise.
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Notes to Consolidated Financial Statements
The Company evaluated the tobevibart transaction under ASC 606 and identified one performance obligation consisting of the license granted to Brii Bio. Under the Brii Agreement, Brii Bio is responsible for performing all research and development activities, and the Company does not have any other performance obligations within the context of ASC 606 under the arrangement after the option exercise. The transaction price was determined to be $22.3 million, which consists of the $20.0 million option exercise fee and $2.3 million of the deferred revenue allocated to the tobevibart option at the inception of the Brii Agreement. The Company determined that the license is considered a functional intellectual property that is a distinct performance obligation. Specifically, the Company believes the license is capable of being distinct, as Brii Bio has the capabilities to develop the license either on its own or by contracting with other third parties. Brii Bio can benefit from the license at the time of grant and, therefore, the related performance obligation is satisfied at a point in time.
For the years ended December 31, 2023 and 2021, no license revenue from a related party was recognized. For the year ended December 31, 2022, the Company recognized $22.3 million as license revenue from a related party.
Alnylam
In 2017, the Company entered into a collaboration and license agreement with Alnylam (the “Alnylam Agreement”) for the development of siRNA products for the treatment of HBV, and following the exercise of certain program options, the development and commercialization of siRNA therapeutic products directed to up to four other infectious disease targets selected by the Company. Under the Alnylam Agreement, the Company obtained a worldwide, exclusive license to develop, manufacture and commercialize the HBV siRNA product candidates, including elebsiran, for all uses and purposes other than agricultural, horticultural, forestry, aquaculture and other residential applications (such excluded fields, the “Excluded Fields”). In addition, Alnylam granted the Company an exclusive option, for each of the infectious disease siRNA programs directed to the Company’s selected targets, to obtain a worldwide, exclusive license to develop, manufacture and commercialize siRNA products directed to the target of each such program for all uses and purposes other than the Excluded Fields. Following the Company’s exercise of an option for a program and payment of the program option exercise fee and any outstanding program costs due to Alnylam, the Company is solely responsible, at the Company’s expense (subject to Alnylam’s exercise of a profit-sharing option), for conducting all development, manufacture and commercialization activities for products arising from each such program. If Alnylam exercises its profit-sharing option, the parties will negotiate and enter into a profit-sharing agreement for such product.
The Company will be required to pay Alnylam up to $190.0 million in the aggregate for the achievement of specified development and regulatory milestones by the first siRNA product directed to HBV. Following commercialization, the Company will be required to pay to Alnylam up to $250.0 million in the aggregate for the achievement of specified levels of net sales by siRNA products directed to HBV. The Company may also be required to pay Alnylam tiered royalties at percentages ranging from the low double-digits to mid-teens on annual net sales of HBV products. The royalties are payable on a product-by-product and country-by-country basis until the later of the expiration of all valid claims of specified patents covering such product in such country and 10 years after the first commercial sale of such product in such country.
The term of the Alnylam Agreement will continue, on a product-by-product and country-by-country basis, until the expiration of all royalty payment obligations under the Alnylam Agreement. If the Company does not exercise its option for an infectious disease program directed to one of its selected targets, the Alnylam Agreement will expire upon the expiration of the applicable option period with respect to such program. The Company may terminate the Alnylam Agreement on a program-by-program basis or in its entirety for any reason on 90 days’ written notice. Either party may terminate the agreement for cause for the other party’s uncured material breach on 60 days’ written notice (or 30 days’ notice for payment breach), or if the other party challenges the validity or enforceability of any patent licensed to it under the Alnylam Agreement on 30 days’ notice.
The Company incurred expenses under the Alnylam Agreement of $1.7 million, $1.4 million, and $11.2 million during the years ended December 31, 2023, 2022 and 2021, respectively.
Xencor
In 2020, the Company entered into a patent license agreement (the “2020 Xencor Agreement”), with Xencor under which the Company obtained a non-exclusive, sublicensable (only to its affiliates and subcontractors) license to incorporate Xencor’s licensed technologies into, and to evaluate, antibodies that target any component of a coronavirus, including SARS-CoV-2, SARS-CoV and MERS-CoV, and a worldwide, non-exclusive, sublicensable license to develop and commercialize products containing such antibodies incorporating such technologies for all uses. These technologies are used in sotrovimab, incorporating Xencor’s Xtend technology.
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Notes to Consolidated Financial Statements
In consideration for the grant of the license, the Company is obligated to pay royalties based on net sales of licensed products at the mid-single-digits. The royalties are payable, on a product-by-product and country-by-country basis, until the later of the expiration of the last to expire valid claim in the licensed patents covering such product in such country or 12 years. During the years ended December 31, 2023, 2022, and 2021, the Company recognized $2.2 million, $114.5 million, and $52.7 million, respectively, as cost of revenue for royalties due to Xencor from the sale of sotrovimab.
The 2020 Xencor Agreement will remain in force, on a product-by-product and country-by-country basis, until the expiration of all royalty payment obligations under each of the respective agreements. The Company may terminate each agreement in its entirety, or on a target-by-target basis, for convenience upon 60 days’ written notice. Either party may terminate each agreement for the other party’s uncured material breach upon 60 days’ written notice (or 30 days in the case of non-payment) or in the event of bankruptcy of the other party immediately upon written notice. Xencor may terminate each agreement immediately upon written notice if the Company challenges, or upon 30 days’ written notice if any of the Company’s sublicensees challenge, the validity or enforceability of any patent licensed to the Company under each respective agreement.
8. Balance Sheet Components
Property and Equipment, net
Property and equipment, net consists of the following (in thousands):
December 31,
Construction in progress 226 —
Less: accumulated depreciation and amortization (33,896) (20,743)
Depreciation and amortization expenses were $18.9 million, $6.3 million and $5.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Accrued and Other Liabilities
Accrued and other liabilities consist of the following (in thousands):
December 31,
Operating lease liabilities, current 12,867 4,137
Excess funds payable under grant agreements 9,202 7,652
Other professional and consulting expenses 3,418 3,987
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Notes to Consolidated Financial Statements
9. Restructuring, Impairment and Other Costs
In December 2023, the Company initiated strategic steps to reduce operating expenses and focus its capital allocation on programs with the highest potential for patient impact and value creation (“Restructuring Plan”). As part of the steps, the R&D facilities in St. Louis, Missouri and Portland, Oregon will be closed in 2024. In addition, approximately 75 net positions, or 12% of the workforce, will be eliminated, which includes reductions from the Company’s discontinuation of its innate immunity small molecule group that was initiated in the third quarter of 2023. The Company expects all actions related to the Restructuring Plan to be substantially completed in the third quarter of 2024.
During the year ended December 31, 2023, the Company incurred severance and other employee-related expenses of $5.9 million, of which $4.0 million is included in research and development expense and $1.9 million is included in selling, general and administrative expense. As of December 31, 2023, the Company recorded $4.5 million as accrued and other liabilities related to restructuring costs. The Company expects to incur additional charges of approximately $25 million to $35 million, primarily related to facility closures in the future.
In addition to these strategic steps, the Company also recorded one-time non-cash impairment charges and disposal losses on ROU assets, leasehold improvements, and equipment of $7.7 million for the year ended December 31, 2023, primarily related to consolidation of facilities and disposal of equipment used in the small molecule platform that was discontinued. Of the $7.7 million, $5.6 million is included in research and development expense, and $2.1 million is included in selling, general and administrative expense.
10. Commitments and Contingencies
Lease Agreements
The Company has various operating lease arrangements for office and laboratory spaces located in California, Oregon, Missouri, and Switzerland with contractual lease periods expiring at various dates through 2033. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain lease agreements also provide the Company with the option to renew for five years. These renewal options are not considered in the remaining lease term unless it is reasonably certain that the Company will exercise such options. In December 2023, the Company announced that the R&D facilities in Missouri and Oregon will be closed in 2024.
Throughout the term of the lease agreements, the Company is responsible for paying certain operating costs, in addition to rent, such as common area maintenance, taxes, utilities and insurance. These additional charges are considered variable lease costs and are recognized in the period in which the costs are incurred.