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.

Paul Choi: Hi, thank you. Good afternoon everyone. My first question is, if we think about stripping out the one-time true-up for the excess sotrovimab supply and manufacturing to GSK. And I know there’s a couple of moving parts there still. If we strip that out — if we look at the maybe the year ago OpEx, is that sort of the normalized rate that you would think, think would be normal here going forward? And what does that imply for your cash runway? If you’re you can prepare and just say how long your cash balance will go through. And then secondly, on hep B for the, 2218 3434, plus or minus, peg data set that will be coming up in the, later this year. Can you maybe level set patients on how we should think about potential efficacy there? Is there potential for synergy, or should we potential think about it largely as additive And also, what can you say on potential tolerability of the regimen given, head interference, historical challenges? Thank you.

Marianne De Backer: Okay. Thank you very much, Paul. Maybe the first question on cash runway, Sung you can give some more information there.

Sung Lee: Yes, Paul. thanks for your question. So, I think you had a couple of questions there on basically operating expense normal levels, is last year comparable and the implications for our cash runway going forward. So, when you think about our operating expense and specifically R&D expense for the last several quarters — the last three or four quarters, it’s been heavily driven by the investment in the flu Phase 2 study, the PENINSULA study. In addition to that, we also invested in manufacturing activities for an anticipated Phase 3 study in flu. So, these have been the primary drivers of our R&D operating expense for the last several quarters. Now, going forward, obviously, as I go back to the prepared comments I made on the ramping down of the PENINSULA study in the next, few quarters, there are some variables here where we have an ongoing Phase 2 study in hepatitis B and hepatitis Delta and we’re going to get to some important data readouts in quarter four this year.

So, depending the readouts of those data, that could be a big swing factor for where our OpEx trajectory will be in the future. And certainly, has implications for our cash utilization as well. But I just want to make a clarification here. The cash utilization when you go from Q1 to Q2 is not indicative of a run rate. As I mentioned in my prepared comments, was a $273.6 million payment, to GSK related to a liability booked last year. So, I think you have to really, cancel that noise out and then you’ll kind of understand what our true cash utilization has been and it’s been averaging somewhere close to $120 million per quarter, in each of the quarters of this year so far. And then going forward, just coming back to something I said before, the cash utilization will largely depend on the data readouts for hepatitis Delta and Hepatitis B.

But just to finish answering your question, with $1.9 billion of cash and investments, we’re really in a good position here to fund not only to the end of phase two for those programs, but also through Phase 3.

Marianne De Backer: Thank you, Sung. And then, Paul, related to your question on our chronic hepatitis B functional cure program, as you rightly pointed out, in fourth quarter of this year, we will be reporting data on combining 2218, our siRNA, with 3434, our antibody plus minus interferon alpha, 24 weeks end of treatment. So, and we have actually some really promising data that we have seen and have announced at E-Zone earlier this year. So, I would invite Phil to talk a little bit more about what we have seen as to signals of efficacy and also additivity.

Phil Pang: Thank you, Marianne. So, Paul, great to talk to you again. And before we get going here, as Marianne mentioned, I think it’s important to say before we can talk about what’s going to be new, I just wanted to reiterate what we’ve seen most recently at the last two liver congresses. So, as Marianne noted, at AFLB last year, we saw that a short course of the siRNA-2218 and 3434 was additive, but that duration was only four and 13 weeks. And so what we’re looking for that’s going to be new at ASLB in the fourth quarter of this year is the 24 week data of combining the two of these drugs together. We’re also going to be looking at these two drugs together with the addition of interferon alpha. And I think all of that together is what will be new, along with of course, new data from hepatitis delta.

Sasha Damouni Ellis: Operator, can you go to the next question?

Operator: Okay, our next question comes from Roanna Ruiz from Leerink Partners.

Roanna Ruiz: Great, thanks. Hello, everyone. So maybe first question on Delta virus, what specific measures could you disclose in the Phase 2 SOLSTICE trial and what’s the efficacy bar that you’re looking for?

Marianne De Backer: Thank you for that question, Roanna. I will ask Phil to give you some more details on that.

Phil Pang : Thank you, Marianne, and thank you Roanna. So with regard to our Delta trial solstice, remember at Eazl this last year, this last June, actually, sorry, this past June, we just showed that in preclinical models 3434, our FC enhanced monoclonal antibody was able to knock down the hepatitis delta virus or the RNA from the virus. And we also showed that 2218, our siRNA could do the same and that when combined in an animal, they were additive in their behavior. So now we’re looking at solstice, which also began in the early part of the spring. And we’re asking ourselves the question, can 3434 alone, 2218 alone, and what’s going to happen if you add the two of these drugs together in terms of their ability to knock down hepatitis delta RNA virus?

So that’s what we’re looking forward to seeing at in the fourth quarter of this year. As you know, the efficacy bar is, rather the bar for getting approval is a two-long reduction in hepatitis delta RNA and normalization of ALT, which is only seen 45% of the time with the only currently available drug, and that drug requires daily subcutaneous injections. What we’re hoping for is transformative efficacy along with maybe having only an injection once or twice a month. So I think that that can be very differentiating for us. Now in terms of what we’re going to actually see in terms of data, as I mentioned, it’ll be the monotherapy and the combination, but this is early data from a small cohort. So we want to be able to see are they actual antivirals in patients?

And that’s what we look forward to seeing.

Marianne De Backer: Yes, a few more days are coming forward to us next year.

Roanna Ruiz: Okay, great. And I have a quick follow-up. Yes, maybe bigger picture. Could you give us a sense of what your strategic priorities for the company will be in 2024? And I guess thinking about flu, Delta virus, HPV, and all the programs you have going on, are some of them going to shift to like higher focus next year? And like, what should we be following more closely along those lines?

Marianne De Backer: Yes, thank you for that question. As mentioned before, as it relates to our flu program, what next steps are going to be are really going to be determined by further analysis of the data. But our, near and intermediate focus is really on our clinical programs. So, chronic hepatitis B and chronic hepatitis delta, those are really our top priorities. We will also be bringing HIV program into the clinic in the next, this quarter. So our focus, our capital allocation will really be all around making sure that as fast and as efficiently as possible we can progress those programs towards data.

Roanna Ruiz: Got it. Thanks.

Operator: Our next question comes from Eric Joseph from JPMorgan.

Eric Joseph: Hi. Good afternoon. Thanks for taking the questions. Just one or two on HBV, just trying to get a better sense of the update we might see from March Part B in the fourth quarter, whether we should expect – well, well really the types of patient numbers, I guess we should anticipate, and whether we should expect readouts across the four different treatment regimens. And then I’m also curious to get a sense from you guys of what level of S-antigen clearance would support the addition of 3434 being additive to what you’ve reported so far from the Yuan trial of 2218 plus PEG, the doublet alone. Thanks.

Phil Pang: All right. So, Eric, thanks for the question. I would like to begin by stating let’s level set to what was shown at easel. At easel what we showed was that 48 weeks of 2218 with interferon alpha was able to result in an off treatment response in about 16% of patients six months after the end of treatment. That was preceded by an on treatment seroclearance, as you referred to earlier, of around 30%. So, basically 30% of patients had an on treatment response and then 16% had a continued off treatment response with 48 weeks of 2218 plus interferon alpha. What we’re going to be seeing in the fourth quarter of this year is of course the 24 week on treatment data from the triplet and the doublet. And so what we should be looking for is that 2218 plus 3434 gets us to patients who have a seroclearance.

And remember when you give 2218, 1, 8, and 34, 34 for only four or 13 weeks, we did not see any patient with seroclearance. So therefore, the goal will obviously be to see more patients or a number of patients with seroclearance, and whether or not we can match or exceed the 30% we saw with 48 weeks of the prior double. The other thing that’s important to look forward to is, of course, adding interferon onto that combination of 2, 2, 1, 8, and 34, 34, and seeing how much better we can do with that. Now, going back to, Paul’s earlier question about tolerability, clearly interferon alpha has some tolerability issues, if given for a long period of time, but that’s in the context of low efficacy. If we can achieve functional cure rates greater than 30% or 40%, we think that this is something that patients will really be keen to understand better and appreciate given the fact that living with a chronic disease is, as Marianne alluded to in the prepared remarks, something we’ve heard a lot about patients, as something that they want.

Marianne De Backer: Yes, and I would just add that as it relates to enrollment and timing, I mean, we’re right on track as to our expectations.

Eric Joseph: Okay. Would it be premature in the fourth quarter to see any post-treatment follow-up or off-treatment follow-up for patients that only received the 20 or 24-week regimen?

Phil Pang: So, Eric, at this time, all we’ve guided to is the on-treatment data from the 24-week ONs. And we are definitely looking forward to that information along with, as I alluded to earlier with marijuana, the chronic hepatitis D delta. So I think those are going to be the two exciting data sets that we hope to be able to share in the fourth wave.

Eric Joseph: Excellent, thanks very much. Looking forward to it.

Operator: Our next question comes from Eva Privitera from TD Cowen.

Eva Privitera: Hi. Good afternoon, and thanks for taking our questions. To just follow up on the prior question, for the triple combination with data in the second half, what rate of on-treatment seroclearance would get you excited or be indicative of the off-treatment clearance?

Phil Pang: Yes, so to answer that question, I think, again, context is important. For 2218 plus interferon alone, for only 24 weeks, we saw only a 5% rate of seroclearance on treatment. So I think anything beyond that is biological proof of principle that 3434 when added to 2218 interferon is moving the needle. And of course, if you can get there without interferon and 2218 plus 3434, I think that would also be quite impressive. So I think both of those things are important steps forward. And then of course the higher the on-treatment response rate, the more excited we’ll be in terms of whether or not this is going to be able to make a meaningful difference to patients.

Eva Privitera: But what delta between, what delta would you anticipate between the on-treatment and the off-treatment? Is there any way to know?

Phil Pang: Well, I think one of the exciting things that we saw at Eazl was one of the first times that there was a predictor of off treatment response. Now, granted, it was a small cohort of patients, but we demonstrated in that small cohort of patients that patients who seroconverted, not just serocleared, but seroconverted to anti-S antibodies at high levels, greater than 100 or 200, that they were the ones most likely to have an off-treatment response. So certainly we’re going to be looking at that metric in our studies to see what the off-treatment response will be. Clearly in our studies it went from 30% down to 16%, but really I think it’s going to be guided by which patients mount an anti-S response and what level of anti-S response that they mount, and we’ll look forward to seeing what that data looks like.

Eva Privitera: Great, thank you very much.

Operator: Our next question comes from Mike Ulz with Morgan Stanley.

Mike Ulz: Hey guys, thanks for taking the question. Maybe just another follow up on the March Part B data expected later this year. Just based on what you’ve seen so far, in terms of some of the other studies from Part A, et cetera, do you think 24 weeks will be enough? Or do you think you may have to go to 48 weeks? And is this a situation where longer term tends to be better? Or could there be a reason why longer would not be better for some reason? And then maybe your thoughts on the need for PEG interferon or not. Thanks.

Phil Pang: Great. So that sounded, I think, like a three-part question, Mike. So let me make sure I get all three parts. So the reason for longer being better biologically is, of course, based on historical precedent that when you give PEG interferon alpha for 24 versus 48 versus even 72 weeks, you do get a better response even if it’s still low single digits. So that’s why longer has been historically better. Of course, that’s balanced by what I think Paul was alluding to earlier when he talked about tolerability, which is the issue is that the longer you give PEG-related interferon alpha, the more side effects accumulate for the patient. So you’re trying to find a balance between those two things, because in the end, it’s really going to come down to efficacy.

And as I was once jokingly told, efficacy is always, along with safety, really where the balance gets, where the rubber hits the road. So I would say that if we can demonstrate a 24 week cure that is similar to the 48 week cure, we will of course go with the 24 weeks because I think that that would allow patients to have a shorter course of interferon therapy. But really if it’s a delta, a meaningful efficacy delta, then we’ll have to decide as we look forward to talking to patients and talking to providers, what exactly would be most desirable in that group. So that’s really the balance between longer is better from an efficacy perspective, and longer being less ideal from a safe, not a safety, but a tolerability perspective. Did that answer your question, Mike?

Mike Ulz: Yep, that’ll make sense. And then your thoughts on the need for PEG, I guess. Shorter with PEG might work, but longer maybe doesn’t make sense.

Phil Pang : So I would say that the — let me answer that in two ways. Let me answer that from a biological perspective, and then from a patient perspective. From a patient perspective, I think that it is really going to depend on what the efficacy is. So imagine you’re a patient right now, and someone says, I’m going to give you a year-long course of therapy, it’s going to have some side effects, but you only have a one in 20 chance of it actually benefiting you at all. Most people say, I’m not willing to roll the die in that circumstance. However, if you were to come back to that same patient and say, I’m going to give you a year of therapy, but if I do it in combination with these other drugs, I could increase your chance of cure to, one in three or one in two, I think that’s a very different story.

So I don’t think it’s just about absolute duration. I think it’s about efficacy in the context of that duration. As far as the biological need for interferon, I think there are things in favor of suggesting why it might be necessary. I think the fact that, it is the only known way to cure hepatitis B right now that has been approved is one interesting point. But I think it points more broadly to the need for an immune modulator to really achieve a functional cure, which is really an immunologically-induced remission. So, one of the aspects about VIR-3434 that we’re really excited about is the fact that it’s not just a neutralizing antibody. It has a modified Fc domain, which allows it to act as a potential therapeutic vaccine. And if that aspect of the VIR-3434, which we believe may allow it to act as a substitute or an alternative to interferon alpha.

So of course the jury’s still out on that. We’re going to see what 24 weeks looks like on treatment this coming Q4. And then we’ll of course have what 48 weeks of that treatment look like next year.

Mike Ulz: That’s helpful. Thank you.

Operator: All right. Our next question comes from Joseph Stringer from Needham & Company.

Joseph Stringer : Hi. Thanks for taking our questions. Two from us. First on the HIV program, you were previously evaluating your 1111 and Phase 1 trials. What’s different about 1388 and what gives you confidence that this T cell vaccine is the right approach and what are timelines around initial data? And then secondly, given current cash balance, what are your thoughts on external BD? What’s your appetite for bringing in external assets, whether they be early or late stage? Thanks.

Marianne De Backer : Thank you, Joe. So maybe I’ll start with the last question first. And obviously, we are in a very unique position where we have a strong balance sheet that will allow us to really fund our critical Phase 2 and phase one assets for the next stages of inflection. It also offers us the opportunity to remain opportunistic. And if we see assets or opportunities out there that can really strengthen our pipeline and our capabilities within field biotechnology, then of course we will take advantage of that. For your first question related to the differentiation of VIR-1111 versus VIR-1388. Maybe Phil you can take that one.

Phil Pang : Thanks, Marianne. So, Joseph, we are on track to dose our first patient this quarter in Q3 with VIR-1388, which as you noted is a prophylactic HIV vaccine. In terms of what’s different about it compared to VIR-1111, I think that, obviously, we need to wait for the results in humans, but at least we can say in tissue culture, the biggest difference is that VIR-1111 was deliberately attenuated, which means we made it less able to replicate in tissue culture, because we wanted to really get some basic understanding of how this vector, which is based on human CMV, behaves in people. We now have the opportunity with 1388, based on that safety information from VIR-1111, to take what we call the less attenuated virus into the clinic.

So this virus, at least in tissue culture, is able to replicate a little bit better, and therefore, we believe can be more immunogenic in humans. So I think that that’s really the big difference. And there is of course some other minor differences in terms of some other deletions or insertions we have made, but that’s the key difference between VIR-1111 and 1388.

Marianne De Backer : Thank you, Phil. And then maybe, Sung, if you could comment a little bit more about our cash position.

Sung Lee : Yes, happy to do that, Joe. This is Sung. So I mentioned earlier I think there was a question about our cash runway. So with $1.9 billion on the balance sheet it gives us a lot of financial flexibility and as Marianne said earlier, certainly to fund our current development programs which are broadly in Phase 2, and HIV obviously is in Phase 1, but we can get to the next inflection points for all of those programs should the data support it. So it’s a real fortunate position to be in. Just to reiterate again, and I really want to make this clarification because I do think some information might have been misunderstood. We did have a large payment to GSK during the second quarter and that certainly is, we don’t consider that to be part of our run rate.

Joseph Stringer : Great. Thank you for taking our question.

Operator: All right. Our next question comes from Patrick Trucchio from H.C. Wainwright.

Patrick Trucchio : Thanks, and good afternoon. I have a couple of follow-up questions on the HPV program. So, first, I’m just wondering if you can talk about the bar for regulatory success in HPV, specifically if you need to demonstrate a 30% sustained clearance of the HB surface antigen six months after treatment is halted to achieve approval, or if a rate below this can be sufficient for approval in the setting of HPV. And then, can you talk about the potential for demonstrating a partial cure in HPV? What’s the latest around how this is being defined and if it could at some point become part of maybe a regulatory bar for approval in the setting of HPV treatments? And then separately with the preclinical pipeline candidates unveiled today, how should we think about the remaining preclinical work that remains in potential timing for filing of INDs?

Marianne De Backer : Excellent. Thank you so much, Patrick. So perhaps, Phil, you can start me talking a bit about our preclinical pipeline.

Phil Pang : Definitely, Marianne. So, Patrick, in terms of your third question, I think that, it really is an exciting time for Vir. I already mentioned to you with the last question, 1388, which is the HIV prophylactic vaccine that is going to be entering the clinic this quarter. I did want to actually add a note to that, which is to say that it is based on human cytomegalovirus, as I noted earlier, and human cytomegalovirus is one of the most immunogenic vectors that has ever been described. Sometimes up to 20% of your T cells can be mounted against that vector, and importantly, it generates a type of T cell known as an effector memory mucosal T cell, which is quite important, we believe, in the prevention of diseases like HIV, but also allows us to use it in other diseases such as human papillomavirus.

And that is another thing that is going to be entering the clinic in the next 24 months, basically a therapeutic T cell vaccine called VIR-1949, which is for the control of precancerous lesions caused by human papillomavirus. So both of those things are quite unique and exciting for Vir. In terms of the respiratory franchise and the antibody platform, we’ve already talked about VIR-2981, our neuraminidase-targeting monoclonal antibody that has activity not just against influenza A, but influenza B. We also have VIR-8190, which I touched on earlier, which is uniquely able to neutralize not just RSV but human metapneumovirus, and also VIR-7229, a next generation COVID-19 monoclonal antibody that has really shown quite broad activity and quite potent activity against historical and current strains.

So we really have a broad set of things that we believe will, that can make a huge patient impact in the future that will be entering in the clinic in the next couple of years. Going backwards then to your questions around HPV, in terms of partial cure, I think that this is a, an area that’s what I would say evolving in regulatory science. As you know, the guidelines for the EU and the U.S. are somewhat different. And so right now, that is going to be something we need to follow. As you know, whether or not you could achieve patients who do not require treatment because their DNA is suppressed but their HPV service antigen is still present is sort of a middle ground that people are still unclear on. So certainly that is a fallback position one could always take, but I think the important thing, as you said, is truly to achieve an HPV functional cure, which is, as you defined, loss of surface antigen six months after the end of treatment.

With regard to what the bar is, I actually don’t think 30% is a regulatory bar. I think 30% is a gross estimate of what we would consider clinically meaningful to patients and that obviously always comes with context. What do I mean by that, Patrick? So for example, if you were able to achieve a functional cure of, let’s say, 20% but you were able to do it with a simple set of injections that had very minimal side effects and very well tolerated, I think people would be willing, and patients more importantly, would be certainly willing to give that a try. Because what you’re offering to patients is, I’m going to give you a regimen that is extremely well tolerated that has a one in five chance of really benefiting you. Versus on the other hand, if it is, for example, an interferon containing regimen, I think that the functional cure rate would probably have to be higher because of course then they have to balance the tolerability concerns with the chance of benefit.

So I think 30% is more of a ballpark over the thumb estimate many clinicians will give you. I don’t think it’s a regulatory bar. I think it is a rule of thumb and context is going to really matter.

Marianne De Backer : Thank you, Phil. And Patrick, just to reiterate what we have focused here today is on discussing those preclinical candidates for which we could potentially expect an IND within the next 24 months. Thank you.

Patrick Trucchio : Thank you so much.

Operator: All right, if there are no other questions, I will now turn the call back over to Dr. Marianne De Backer.

Marianne De Backer : Thank you, operator, and thank you all again for your attention today. Vir Biotechnology is a truly vibrant and dynamic company that I believe is poised for significant growth and most importantly for patient impact. I am thrilled to lead Vir into what I believe will be the next transformational trajectory, as we build on the progress that we have achieved so far. I feel confident that we have the internal scientific expertise and the passion to power our mission forward. So thank you all for joining us here today. We really appreciate your time and your interest in Vir Biotechnology. Thank you. Operator, you may end the call.

Operator: This concludes the meeting. You may now disconnect.