Vir Biotechnology, Inc. (NASDAQ:VIR) Q2 2023 Earnings Call Transcript

Vir Biotechnology, Inc. (NASDAQ:VIR) Q2 2023 Earnings Call Transcript August 3, 2023

Vir Biotechnology, Inc. misses on earnings expectations. Reported EPS is $-1.45 EPS, expectations were $1.21.

Operator: Hello. Welcome to Vir Biotechnology Second Quarter 2023 Financial Results and Business Update Call. As a reminder, this conference call is being recorded. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I will now turn the call over to Sasha Damouni Ellis, Executive Vice President, Chief Corporate Affairs Officer. You may begin Ms. Damouni Ellis.

Sasha Damouni Ellis: Thank you and good afternoon. With me today are Marianne De Backer, Chief Executive Officer; Dr. Phil Pang, Chief Medical Officer; and Sung Lee, Chief Financial Officer. Before we begin, I would like to remind everyone that some of the statements we are making today are forward-looking statements under the securities laws. These forward-looking statements involve substantial risks and uncertainties that could cause our clinical development programs, future results, performance, or achievements to differ significantly from those expressed or implied by such forward-looking statements. These risks and uncertainties and risks associated with our business are described in the company’s reports filed with the Securities and Exchange Commission, including Forms 10-K, 10-Q, and 8-K. I will now turn the call over to our CEO, Marianne De Backer.

Marianne De Backer: Thank you, Sasha. Good afternoon and welcome to Vir Biotechnology’s first earnings call. I’m Marianne De Backer, CEO of Vir, and I’m pleased to welcome you all here today. I joined Vir four months ago, and every day since I’m reminded of how well Vir aligns with my commitment over the past 30 plus years to bring new medicines to patients. Vir is one of those unique companies that uses ingenuity in the discovery of neutralizing antibody in the fight against COVID-19 and this during the very worst times of the pandemic. This was achieved in just 15 months and brought to nearly 2 million people around the world. Before that, the Vir discovery engine had already yielded an antibody to treat Ebola. Now recognized by the World Health Organization for its impact.

After four months of learning about Vir’s differentiating capabilities, platforms, pipelines, and strong partnerships, I could not be more enthusiastic to lead this team of passionate driven professionals who always have the end goal in mind, serving patients. Today, and over the next few quarters, I will share more about our focused efforts to drive our pipeline and our science forward. We hope you take away an understanding of our strategy, our development programs, and the ability to execute. Infectious diseases continue to pose a major threat to global health, economic security, and to society as a whole. Just last month, in talking to a patient living with chronic hepatitis B, I was reminded of the deep personal impact such a disease has on not just the individual, but also on their families and their communities.

We aim here at Vir to address these needs with a broad range of drug candidates and additional data to come this year. First, I want to touch on our recently announced Phase 2 PENINSULA trial evaluating VIR-2482 for flu prophylaxis, which missed its primary endpoint. Phil will share more details momentarily. It is important to remember that in the world of drug development and clinical trials unexpected outcomes are not uncommon. That is exactly why we take multiple approaches and have a broad pipeline. Seasonal flu affects about 1 billion people around the world and claims up to 650,000 lives each year. It is a significant unmet need that warrants our attention and we will follow the data in guiding our next steps. We do remain interested in this area, and we have VIR-2981 as a preclinical candidate which has a differentiated mechanism of action to VIR-2482, covering both influenza A and B and maybe a more efficacious alternative to vaccines.

Second, Vir is working on a potential functional cure for the more than 300 million people living with chronic hepatitis B worldwide. Current standard-of-care is lifelong therapy, which decreases but does not eliminate the risk of cirrhosis or liver cancer. At Vir, we aim to achieve a functional cure, meaning allowing control of the virus without such chronic medical therapy. This is akin to remission and further reduces the risk of debilitating disease progression. Vir is focused on regimens, such as combining an antibody within a siRNA designed to stop the virus and clear the infection. We expect a data readout from Part B of our ongoing March Phase 2 trial in the fourth quarter, which we hope will get us again one step closer to a functional cure for chronic hepatitis B.

Third, I want to highlight what Vir is working on to address chronic hepatitis delta, which affects more than 12 million people worldwide and imposes a four times greater risk of liver cancer compared to chronic hepatitis B alone. We know that around 5% to 15% of patients with chronic hepatitis B are co-infected with hepatitis delta virus and the World Health Organization considers chronic hepatitis delta to be one of the most severe forms of viral hepatitis. Our goal is convenience, once or twice monthly injections with transformative efficacy. Initial data from our clinical trial [Indiscernible] are expected in the fourth quarter. We also expect to report significant progress in the discovery of new drug candidates using our proprietary antibody and T-cell platforms, which are yielding a robust pipeline that is optimized through AI and our unique data science capabilities.

Currently about 90% of our pipeline leverages data science tools, which enable us to discover, select, and develop drug candidates with the highest chance of success of becoming medicines that could benefit patients in need. Going forward, all our antibodies will be optimized using this approach. Still, we’ll touch on the preclinical programs that have the potential for IND filings within the next 24 months. Lastly, we have a strong balance sheet that allows us the financial flexibility to fuel our program and grow our anti-body platform. We are taking measures to continuously evaluate and judiciously allocate this capital to maximize value for our shareholders. As part of this process and under my leadership, we made the decision to phase out our small molecule platform.

This is the first step as we continue to advance our core capabilities and scientific pros. The combination of all the strengths we have here at Vir makes this a very exciting time. I am confident in our ability to advance our development program and potentially impact the lives of many patients. I’ll now turn the call over to Chief Medical Officer, Phil Tang, to provide more details on our pipeline.

Phil Pang: Thank you, Marianne. Before speaking to our future research and ongoing development efforts, I want to address the topline data from our influenza Phase 2 clinical trial. This trial failed to demonstrate a statistically significant difference between those who received VIR-2482 and placebo. Specifically, at 1200 milligrams, which was the highest dose of VER-2482 tufted, there was a non-statistically significant reduction in influenza illness of approximately 16%. Interestingly, in this same group, an approximate 57% reduction in influenza A illness was observed when illness was defined according to CDC criteria. More analysis is going to be needed to address why this study was unsuccessful. We are looking at the data from the perspective of how different symptoms, their duration, and severity might influence outcomes, and understanding drug concentrations, time to infection, and the sequence of the actual viruses the participants were exposed to will also be important.

As far as next steps, any other significant development of VIR-2482 will be guided by these analogies. To be clear, however, we will not be initiating Phase 3 trial. In the influenza space, as Marianne noted, we are continuing our efforts on VIR-2981, an investigational [Indiscernible] targeting monoclonal antibody. That covers not just flu A, but also flu B. In some animal models, it has shown markedly greater potency. The characteristics of VER-2981 parent antibody was recently published in nature. Because VER-2981 has a different mechanism of action, targeting the enzymatic activity of the neuraminidase, not the stem of a hemagglutinin, we believe in its potential to prevent influenza illness. As we learn more from the PENINSULA trial, we will certainly apply relevant findings the ongoing development of VIR-2981.

More broadly, as Marianne noted earlier, the antibody platform in beer has already resulted in a medicine for COVID-19 in just fifteen months, and the only single antibody capable of treating Ebola. So, one of the setback for VERAD2482 is unfortunate, it doesn’t change our perspective on our platform’s ability to identify potentially best in class antibodies and to then leverage data science and AI to further engineer them. Specifically, we can enhance antibody binding, potency, vector function, half-life, developability, and stability. Even more broadly, we recognize the importance of a fully integrated data strategy from research all the way through product development. And believe that this ability will continue to be differentiated here at Vir.

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We have 24 publications and numerous patents and awards related to our data science achievements. Now, let’s turn to chronic hepatitis B. Unlike the current standard-of-care, which requires taking antiviral medicines for the rest of one’s life and does not eliminate the risk of cirrhosis or liver cancer, our goal is a functional cure. After completing a functional cure therapy, there should be no need for further treatment and there should also be a further reduction in the risk of liver complications. Our functional cure hypothesis is based on a novel widely accepted belief that chronic hepatitis B is an immunologic disease caused by a virus. As such, we believe that combinations of anti-virus alone are not enough. Instead, we believe functional cure requires a combination of antivirus with immunologic agents.

We call our approach stop and clear. We stop the virus from replicating and clear already infected cells by immune-stimulation. This is the fundamentally different hypothesis we seek to prove in our clinical trials. Our clinical development pathway has been as follows. We began with Phase 1 and Phase 2a studies that are exploring different combinations of anti-virals and immunomodulators. By specifically using small courts in these studies, we are able to explore a broad space of possibilities to help identify the right combination, dose, duration, frequency, and population. In the studies, we have made two major advances towards a functional cure for chronic hepatitis B that highlight why we believe we can succeed. One, At 11 June, we showed that we could achieve a durable off treatment response in 16% of participants who received VIR-2218, and pegylated interferon alpha for 48 weeks.

While the sample size was small and the confidence interval is large, it’s worth noting that interferon alpha alone is generally thought to result in an off treatment response only 3% to 7% of the time. Two, at the AASLD Conference in 2022, we showed that a short course of VIR-2218 with VIR-3434 3434 resulted in nearly a three log knockdown in hepatitis B surface antigen. This is a viral protein that is a measure of virus activity. Notably, antiviral activity was additive and no new safety signals were observed. Our next development step has been to build upon these observations. Last summer, we started Part B of our Phase 2 March study which is exploring the combination of VER2-two eighteen and VER3-four thirty four with and without pegylated interferon alpha.

For durations of 24, 48 weeks. We expect to present end of treatment data for the 24 week cohorts in the fourth quarter. Let me now direct your attention to chronic hepatitis Delta. For chronic hepatitis Delta, the only treatment approved which is only available in some parts of the world and not the US, requires lifelong daily subcutaneous injections and has only a 45% chance of benefiting the patient. Our goal is a highly efficacious treatment that only needs to be administered once or twice a month. Because hepatitis delta requires the surface antigen protein from hepatitis B, we can target delta using our existing chronic hepatitis B assets, VIR-2218 and VIR-3434. At EASL, we shared the preclinical data demonstrating their potent anti-viral activity against hepatitis Delta.

A Phase 2 clinical trial is now underway evaluating VIR-2218 and VIR-3434 individually or in combination with one another in a small cohort of hepatitis delta patients. We expect to present data from this trial in the fourth quarter. It is worth noting that because hepatitis Delta is a potential orphan disease with high unmet medical need, the regulatory path for a treatment for Delta may be accelerated. Turning now to our early stage pipeline, we’ve already highlighted VIR-2981, our neuraminidase flu antibody. I will now touch on other key assets based on our proprietary monoclonal antibody platform, First, VIR-8190, which in vitro can neutralize both RSV or respiratory syncytial virus and human metapneumovirus. Both of these viruses pose a serious threat to infants and immunocompromised.

Second, VIR-7229, our next generation COVID-19 monoclonal antibody, which in vitro is differentiated by both extreme breath and potency against a broad spectrum of historical and currently circulating variants. With respect to our T cell platform, which is based on human cytomegalovirus, we are advancing two assets; VIR-1388 is our novel next generation HIV vaccine, which will soon be entering the clinic. Unlike VIR-1111, which was deliberately attenuated by creating a replication defect, VIR-1388 does not have that replication defect, and we believe can be more immunogenic. We anticipate dosing our first patient in Q3 of this year. VIR-1949 is a potentially therapeutic vaccine against HBV associated cervical, anal, and head and neck dysplasia and cancer and is the second asset in our T cell platform based on HCMV.

We look forward to sharing more about these INDs in the future. I will now turn the call over to Chief Financial Officer, Sung Lee.

Sung Lee: Thank you, Phil. We’re pleased to share our financial results for the second quarter of 2023. Total revenues were $3.8 million compared to negative $40.6 million for the same period a year ago. Recall that in 2022, the company recorded a revenue constraint related to sotrovimab in the amount of $397.4 million, which caused the total revenues and collaboration revenue in the second quarter of 2022 to be negative. Specific to sotrovimab in the second quarter of 2023, collaboration revenue was negative $13.8 million, mainly due to sotrovimab sales being more than offset by manufacturing costs and expenses to support activities in countries where sotrovimab continues to have a marketing authorization. Going forward and barring a reauthorization of sotrovimab in the US, we believe collaboration revenues will be at minimal levels and potentially make a negative contribution to our topline due to the ongoing required investments to support the marketing authorization, which our partner GSK leads in the upper 10%.

Turning to operating expenses. R&D expenses in the second quarter of 2023 were $171.9 million compared to $115.1 million in the same period in 2022. Included in the 2023 amount is a non-cash charge of $10.7 million related to the impairment of legacy in process R&D and consolidation of our labs. The year-over-year growth in R&D expenses was primarily driven by investments in the Phase 2 study PENINSULA for VIR-2482 and manufacturing activities in anticipation of initiating a Phase 3 study. While the costs associated with the PENINSULA study will ramp down in the next few quarters, we are currently evaluating the impact of the day three manufacturing capacity and supply for VIR-2482. We expect to communicate more on this with our third quarter result.

SG&A expenses in the second quarter of 2023 were $47.1 million compared to $41.6 million for the same period in 2022. The year-over-year growth was primarily driven by higher personnel costs to support the overall growth of the business. For the second quarter of 2023, we reported a consolidated net loss of $194.8 million compared to a net loss of $76.5 million for the same period in 2022. Turning to the balance sheet, we ended the second quarter of 2023 with cash and investments of $1.9 million compared to $2.4 million at the end of 2022. As communicated previously, we made a payment of $273.6 million in the second quarter to our collaborator GSK, which comprised the majority of cash utilization during the quarter. This payment primarily relates to the amount reserved in 2022 for excess sotrovimab supply and manufacturing capacity due to reduced demand expectations for sotrovimab.

There remains a balance of $69.7 million related to this reserve, which we expect a payment of approximately $41.8 million to GSK in the third quarter of 2023. As I conclude, I would like to make a few comments about our financial position and capital allocation. As Marianne stated earlier in the call, we are making decisions and taking actions to become more focused, which has resulted in the discontinuation of our small molecule platform. We’re well-capitalized to see our current Phase 2 programs in hepatitis B and hepatitis Delta through the end of Phase 2 and beyond. We also have the balance sheet strength to pursue further innovation by investing in our core antibody platform. And finally, you can expect us to be strong stewards of capital and have a disciplined approach to capital allocation and expense management.

I’ll now turn the call back to Sasha.

Sasha Damouni Ellis: Thank you, Sung. We will now start the Q&A section. Please limit questions to two per person so that we are able to get to all of our covering analysts. Operator, please open up the lines.

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Q&A Session

Operator: Okay. Our first question comes from Gena Wang from Barclays. Your line is open.

Gena Wang: Thank you. I have two questions regarding the flu 2482 program. So, first, regarding the PENINSULA study, so why the design didn’t have a lower band of a 30% like Pfizer and Moderna studies, if we use 30% lower bound, the study would look like underpowered. Could that be the reason leading to the failure? And the second question is, was the negative topline, are you — and also the work in flu and also any week through to the other via programs or antibody platform?

Phil Pang: Thank you, Gina. Really appreciate that chance to answer your questions and let me begin with your first question with regard to the design of the potential of the trial. So, the first thing I want to say is that, the real — the short answer is that it was a well powered study, and we need to think of it in the context of the fact that our desire was to show an efficacy beyond that traditional vaccines. So when you think about how to power study, it’s not just about demonstrating statistical significance, but it’s about demonstrating clinical significance in the context of that. And so, for example, we could have powered a study demonstrate that a 10% effect size was statistically significant. However, of course, as you know, Gena, that wouldn’t have been clinically meaningful given the vaccines that are currently out there.

This is in contrast to vaccine flu trials, which do have a desire to that that basically power their study for clinical significance and statistical significance to a lower bound confidence interval of 30%. But I would like to remind you that with regard to monoclonal antibodies, both RSV and COVID, neither of them used such a flu vaccine specific endpoint. So, I think that we were definitely well powered to ask the question and answer the question, could we achieve transformative efficacy and, unfortunately, we did not. With regard to the other aspects of 2482, I really want to point to the fact that we are undergoing more analysis right now as to why this study was unsuccessful. And we’re looking at it from many different angles, including different symptoms, the PK, time to infection, and a number of the other things I talked about earlier on this call.

And really, we need to be guided by those results and that analysis and that data to really decide what next to do. But clearly, as I said earlier, also, we’re not going to be embarking on a Phase 3. Then finally, with regard to your question about read-through, I would say that as I think that Marianne said it best when she said that we’ve already had two successes with our anti-body platform; the Ebola antibody, the only single antibody to treat and cure Ebola, as well as the [Indiscernible], which was, brought to market in less than 15 months. So, I don’t think there’s any read-through on our ability to really, design and identify successful medicines using this antibody platform.

Marianne De Backer: Thank you, Phil. I would just, Gina, obviously, we want to be very strategic about how we allocate our capital and Phil pointed out, we are not going to rush into any next steps. We really want to do a thorough analysis of the data and then really be guided by that outcome as to what we will be doing there.

Gena Wang: Thank you.

Operator: All right. Our next question is from Paul Choi from Goldman Sachs. Your line is open.