VIR BIOTECHNOLOGY, I

VIR
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VIR BIOTECHNOLOGY : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

05/06/2021 | 04:13pm

You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our unaudited condensed
consolidated financial statements and the related notes and other financial
information included elsewhere in this Quarterly Report on Form 10-Q and our
audited consolidated financial statements and notes thereto and the related
Management's Discussion and Analysis of Financial Condition and Results of
Operations included as part of our Annual Report on Form 10-K for the year ended
December 31, 2020. Unless the context requires otherwise, references in this
Quarterly Report on Form 10-Q to the "Company", "Vir," "we," "us" and "our"
refer to Vir Biotechnology, Inc. and its consolidated subsidiaries.



Overview



We are a clinical-stage immunology company focused on combining immunologic
insights with cutting-edge technologies to treat and prevent serious infectious
diseases. Infectious diseases are among the leading causes of death worldwide
and can cause trillions of dollars of direct and indirect economic burden each
year - as evidenced by the COVID-19 pandemic. We believe that now is the time to
apply the recent and remarkable advances in immunology to combat infectious
diseases. Our approach begins with identifying the limitations of the immune
system in combating a particular pathogen, the vulnerabilities of that pathogen
and the reasons why previous approaches have failed. We then bring to bear
powerful technologies that we believe, individually or in combination, will lead
to effective therapies.



Our current development pipeline consists of product candidates targeting
COVID-19, hepatitis B virus, or HBV, influenza A virus, and human
immunodeficiency virus, or HIV. We have assembled four technology platforms,
focused on antibodies, T cells, innate immunity and small interfering
ribonucleic acid, or siRNA, through internal development, collaborations and
acquisitions. We have built an industry-leading team that has deep experience in
immunology, infectious diseases and product development. Given the global impact
of infectious diseases, we are committed to developing cost-effective treatments
that can be delivered at scale.



COVID-19



VIR-7831 is an investigational severe acute respiratory syndrome coronavirus 2,
or SARS-CoV-2, neutralizing monoclonal antibody, or mAb, and incorporates
Xencor's Xtend™ technology.




• In February, we initiated COMET-PEAK (COVID-19 Monoclonal antibody
Efficacy Trial - Patient SafEty, TolerAbility, PharmacoKinetics), a
Phase 2 trial with two parts. The first part, initiated in February, is
evaluating the similarity in pharmacokinetics between VIR-7831
manufactured by different processes. The second part, which began in
April, is comparing the safety and viral kinetics of intramuscularly, or
IM, administered VIR-7831 to intravenously, or IV, administered VIR-7831
among low-risk adults with mild to moderate COVID-19. The low 500 mg
dose of VIR-7831 lends itself to administration via an IM route, and
could facilitate broader access to mAb therapy in settings where IV
administration is not feasible. Data are expected in the second half of
2021.


• In March, we announced that the VIR-7831 arm of the National Institutes
of Health's
, or NIH's, ACTIV (Accelerating COVID-19 Therapeutic
Interventions and Vaccines) Program Phase 3 clinical trial met initial
pre-specified criteria, and no safety signals were reported. Based on
sensitivity analyses of the available data, the independent Data and
Safety Monitoring Board recommended the VIR-7831 arm be closed to
enrollment. We anticipate an NIH-led manuscript to be published later
this year.


• In March, we announced an Independent Data Monitoring Committee, or
IDMC, recommended the Phase 3 COMET-ICE trial evaluating VIR-7831 as
monotherapy for the early treatment of COVID-19 in adults at high risk
of hospitalization be stopped for enrollment due to evidence of profound
efficacy. The IDMC recommendation was based on an interim analysis of
data from 583 patients enrolled in the COMET-ICE trial, which
demonstrated an 85% (p=0.002) reduction in hospitalization or death in
patients receiving VIR-7831 as monotherapy compared to placebo, the
primary endpoint of the trial. VIR-7831 was well tolerated. As the trial
remains ongoing and blinded with patients continuing to be followed for
24 weeks, additional results, including epidemiology and virology data,
will be forthcoming once the trial is completed.


• In March, we announced the submission of an Emergency Use Authorization
request to the U.S. Food and Drug Administration, or FDA, for VIR-7831
for the treatment of adults and adolescents (aged 12 years and over and
weighing at least 40 kg) with mild-to-moderate COVID-19 who are at risk
for progression to hospitalization or death. The submission is based on
the interim analysis of efficacy and safety data from the Phase 3
COMET-ICE trial. These data will also form the basis for a Biologics
License Application submission to the FDA, planned in the second half of
2021.


• In March, we announced topline data from Eli Lilly and Company, or Eli
Lilly, expanded Phase 2 BLAZE-4 trial evaluating the potential benefits
of VIR-7831 together with Eli Lilly's investigational bamlanivimab
(LY-CoV555) in low-risk adult patients with mild to moderate COVID-19.
Results from the trial, which began dosing in January,


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showed that bamlanivimab 700 mg co-administered with VIR-7831 500 mg
demonstrated a 70% (p<0.001) relative reduction in persistently high
viral load (>5.27; cycle threshold value <27.5) at day 7 compared to
placebo, meeting the primary endpoint. In addition, bamlanivimab
administered with VIR-7831 demonstrated a statistically significant
reduction compared to placebo in the key virologic secondary endpoints
of mean change from baseline to days 3, 5, and 7 in SARS-CoV-2 viral
load. No serious adverse events were reported in either trial arm.
Together with Eli Lilly and GlaxoSmithKline plc, or GSK, we are engaging
with the FDA and anticipate working with other global regulators
regarding the possible co-administration of bamlanivimab and VIR-7831
for the treatment of COVID-19.


• In April, we announced that the European Medicines Agency, or EMA,
initiated a review of VIR-7831 for the treatment of adults and
adolescents with COVID-19 who do not require oxygen supplementation and
who are at high risk of progressing to severe COVID-19. The review is
being carried out by the EMA's Committee for Human Medicinal Products
and will provide European Union-wide recommendations for national
authorities who may take evidence-based decisions on the early use of
the medicine, ahead of any formal Marketing Authorization Application.


• In the second quarter of 2021, we plan to initiate two additional trials
evaluating IM administration of VIR-7831:


o COMET-TAIL (Treatment of Acute COVID-19 with Intramuscular
monocLonal antibody) - a Phase 3 trial in high-risk adults to
assess whether IM-administered VIR-7831 can reduce hospitalization
or death due to COVID-19.


o COMET-STAR (Stop Transmission of Acute SARS-CoV-2) - a Phase 3
trial in uninfected adults at high risk to determine whether
IM-administered VIR-7831 can prevent symptomatic COVID-19
infection.



VIR-7832 is an investigational vaccinal SARS-CoV-2-neutralizing mAb, and
incorporates Xencor's Xtend and other Fc technologies. In April, the first
patient was dosed in the UK National Health Service-supported AGILE initiative.
The trial initiative is the first to evaluate VIR-7832 in a Phase 1b/2a trial of
adults with mild to moderate COVID-19. VIR-7832 shares the same characteristics
as VIR-7831 and has been engineered to potentially be a therapeutic T cell
vaccine to further help treat and/or prevent COVID-19. Initial safety data are
expected in the second half of 2021.



HBV



VIR-2218, an investigational HBV-targeting siRNA, is currently in a Phase 2
clinical trial. We also continued to progress a Phase 2 combination trial of
VIR-2218 with pegylated interferon-alpha (PEG-IFN-?) to evaluate the potential
for this combination to result in a functional cure for HBV. One year response
durability data for VIR-2218 as monotherapy and initial clinical data for the
combination of VIR-2218 with PEG-IFN-? will be presented at the European
Association for the Study of the Liver
, or EASL, International Liver Conference
in June.



VIR-3434, an investigational HBV-neutralizing mAb and incorporates Xencor's
Xtend and other Fc technologies, is currently in a Phase 1 clinical trial. In
late January, we announced initial topline data from this ongoing Phase 1 trial
evaluating VIR-3434 for the treatment of patients with chronic HBV. The first
blinded cohort consisted of eight patients with chronic HBV who were taking
nucleoside reverse transcriptase inhibitors, or NRTIs, two of whom received
placebo, and six of whom received a single dose of 6 mg VIR-3434. Six of the
eight patients achieved a mean 1.3 log10 IU/mL reduction in serum HBV surface
antigen by day eight, the day when nadir was achieved in most patients.
Additional safety and efficacy data will be presented at the EASL International
Liver Conference
in June. We also expect to initiate a Phase 2 trial of VIR-3434
in combination with VIR-2218 in the second half of 2021.



Influenza A virus



VIR-2482, an investigational mAb designed for the prevention of influenza A and
incorporates Xencor's Xtend technology, is currently in a Phase 1/2 clinical
trial and has been generally well-tolerated. In February, we signed a binding
preliminary collaboration agreement, or the 2021 Preliminary Agreement, with GSK
to expand our existing collaboration to include the research and development of
new therapies for influenza and other respiratory viruses. The expanded
collaboration, which builds on the agreement signed in 2020 to research and
develop therapies for coronaviruses, provides GSK exclusive rights to
collaborate with us on the development of potential best-in-class mAbs for the
prevention or treatment of influenza. As part of the agreement, we and GSK will
also engage in two additional research programs: 1) an expansion of the current
functional genomics collaboration to include other respiratory virus targets;
and 2) the development of up to three neutralizing mAbs identified using our
antibody technology platform to target non-influenza pathogens during a
three-year research period. Given the relatively low incidence of flu during the
COVID-19 pandemic, we and GSK are currently evaluating the potential timelines
for advancing influenza therapies, including VIR-2482 and other therapies
covered under the expanded agreement. Under the terms of the agreement, GSK will
pay $345.0 million in a combination of an upfront payment and a further equity
investment in us. For details regarding this agreement, see Note 6-Collaboration
and License Agreements to our unaudited condensed consolidated financial
statements included elsewhere in this Quarterly Report on Form 10-Q.




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HIV



VIR-1111, an investigational HIV T cell vaccine based on human cytomegalovirus,
or HCMV, is currently in a Phase 1 trial. This proof-of concept trial is
designed to test the hypothesis that this new approach can elicit potentially
protective immune responses that differ from other HIV vaccines. If observed,
this T cell vaccine could potentially have utility in additional types of
infections and other challenging areas, including cancer. Initial clinical data
are anticipated in the second half of 2021.



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 early clinical trials.



We have financed our operations primarily through sales of our common stock from
our initial public offering and subsequent follow-on offering and convertible
preferred securities and payments received under our grant and collaboration
agreements. As of March 31, 2021, excluding restricted cash, we had $733.0
million
in cash, cash equivalents and short-term investments. Based upon our
current operating plan, we believe that our existing cash, cash equivalents and
short-term investments as of March 31, 2021 will enable us to fund our
operations through at least the next 12 months from the issuance date of the
condensed consolidated financial statements included elsewhere in this Quarterly
Report on Form 10-Q.



We have incurred significant operating losses since our inception and expect to
continue to incur significant operating losses for the foreseeable future. We do
not have any products approved for sale, we have not generated any revenue from
the sale of products, and we do not expect to generate revenue from the sale of
our product candidates until we complete clinical development, submit regulatory
filings and receive approvals from the applicable regulatory bodies for such
product candidates, if ever. Our net losses were $168.9 million and $77.2
million
for the three months ended March 31, 2021 and 2020, respectively. As of
March 31, 2021, we had an accumulated deficit of $836.1 million. 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 early clinical trials, and to a lesser
extent, 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. We
expect to continue to incur net operating losses for at least the next several
years. In particular, we expect our expenses and losses to increase as we
continue our research and development efforts, advance our product candidates
through preclinical and clinical development, seek regulatory approval, prepare
for commercialization, as well as hire additional personnel, protect our
intellectual property and incur additional costs associated with being a public
company. We also expect to increase the size of our administrative function to
support the growth of our business. Our net losses may fluctuate significantly
from quarter-to-quarter and year-to-year, depending on the timing of our
clinical trials and our expenditures on other research and development
activities.



We are currently manufacturing product candidates from three of our platforms:
antibodies, T cells and siRNAs. We have established our own internal chemistry,
manufacturing and control capabilities and are working with contract development
and manufacturing organizations, or CDMOs to supply our early stage product
candidates in the near-term. We have completed our internal capacity build in
process development, analytical development, quality, manufacturing and supply
chain. Specifically, our San Francisco, California and Portland, Oregon
facilities include laboratories that support process development, production of
HCMV research viral seed stock and selected quality control testing for our
product candidates. We have established relationships with multiple CDMOs and
have produced material to support preclinical studies and Phase 1 through Phase
3 clinical trials. Material for Phase 3 clinical trials and commercial supply
will generally require large-volume, low-cost-of-goods production. For example,
for our COVID-19 program, we and our partner GSK have executed manufacturing
agreements with large-scale CDMOs to support future scale-up and capacity,
particularly for potential commercialization.



COVID-19 Business Update



With the global spread of the current COVID-19 pandemic, we have implemented a
number of plans and policies designed to address and mitigate the impact of the
COVID-19 pandemic on our employees and our business. We continue to closely
monitor the COVID-19 situation and will evolve our plans and policies as needed
going forward. As a result of these developments, in March 2020, we implemented
work-from-home policies for most of our employees. We have also implemented
plans to reopen our offices to allow employees to return when appropriate.
Although these plans are based on a phased approach consistent with local
government requirements, and focused on employee safety, and contemplate
returning to remote work should new restrictions be implemented, there is
uncertainty regarding recent phased reopening, which may be rolled back, and
restrictions re-implemented. We are also working to provide our employees with
the support they need to ensure continuity of business operations. We are
working closely with our CDMOs to manage our supply chain activities and
mitigate any potential disruptions to our clinical trial supplies as a result of
the COVID-19 pandemic. If the COVID-19 pandemic persists for an extended period
of time and begins to impact essential distribution systems, we could experience
disruptions to our supply chain and operations, and associated delays in the
manufacturing




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of clinical trial supply. For some of our clinical development programs, we are
experiencing, and may continue to experience, a disruption or delay in our
ability to initiate trial sites and enroll and assess patients. In addition, we
rely on contract research organizations or other third parties to assist us with
clinical trials, and we cannot guarantee that they will continue to perform
their contractual duties in a timely and satisfactory manner as a result of the
COVID-19 pandemic.



Our License, Collaboration and Grant Agreements



We have entered into grant, license and collaboration arrangements with various
third parties. For details regarding these and other agreements, see Note
5-Grant Agreements and Note 6-Collaboration and License Agreements to our
unaudited condensed consolidated financial statements included in this Quarterly
Report on Form 10-Q.



Components of Operating Results



Revenue



We do not have any products approved for sale, we have not generated any revenue
from the sale of our products, and we do not expect to generate revenue from the
sale of our product candidates until we complete clinical development, submit
regulatory filings and receive approvals from the applicable regulatory bodies
for such product candidates, if ever.



Our revenue consists of: (i) grant revenue; and (ii) license and contract
revenue. Grant revenue is comprised of revenue derived from grant agreements
with government-sponsored and private organizations. License and contract
revenue is comprised of revenue generated from license rights issued and
research and development services.








Operating Expenses

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 research and development expenses by product candidate.



Research and development expenses consist primarily of costs incurred for the
development of our product candidates, which include:




• expenses related to license and collaboration agreements, and 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 and facilities
maintenance, and depreciation and amortization.


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We expect our research and development expenses to increase substantially in
absolute dollars for the foreseeable future 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. We
may never succeed in achieving regulatory approval for any of our product
candidates. 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 revenue from the
commercialization and sale 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, 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 would 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;


• the countries in which the trials are conducted;


• 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;


• 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.



General and Administrative



Our general and administrative expenses consist primarily of personnel-related
expenses for personnel in executive, finance and other administrative functions,
facilities and other allocated expenses, and other expenses for outside
professional services, including legal, audit and accounting services, and
insurance costs. Personnel-related expenses consist of salaries, benefits and
stock-based compensation.



We expect our general and administrative expenses to increase substantially in
absolute dollars for the foreseeable future as we continue to support our
continued research and development activities, grow our business and, if any of
our product candidates receive marketing approval, commercialization activities.
We also anticipate incurring additional expenses associated with operating as a
public company, including increased expenses related to audit, legal,
regulatory, and tax-related services associated with maintaining compliance with
the rules and regulations of the SEC and standards applicable to companies
listed on a national securities exchange, additional insurance expenses,
investor relations activities and other administrative and professional
services.



Interest Income



Interest income consists of interest earned on our cash, cash equivalents and
investments.




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Other Income (Expense), Net



Other income (expense), net consists of gains and losses from foreign currency
transactions and the remeasurement of contingent consideration related to our
acquisition of TomegaVax, Inc., or TomegaVax.



Provision for Income Taxes



Provision for income taxes consisted of international income tax.



Results of Operations



Comparison of the Three Months Ended March 31, 2021 and 2020




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



Three Months Ended March 31,
2021 2020 Change
(in thousands)
Revenue:
Grant revenue $ 1,371 $ 5,231 $ (3,860 )
Contract revenue 605 487 118
Total revenue 1,976 5,718 (3,742 )
Operating expenses:
Research and development 134,870 64,979 69,891
General and administrative 25,739 12,649 13,090
Total operating expenses 160,609 77,628 82,981
Loss from operations (158,633 ) (71,910 ) (86,723 )
Other income (expense):
Interest income 164 1,755 (1,591 )
Other expense, net (10,246 ) (7,069 ) (3,177 )
Total other income (expense) (10,082 ) (5,314 ) (4,768 )
Loss before provision for income taxes (168,715 ) (77,224 ) (91,491 )
Provision for income taxes (196 ) (16 ) (180 )
Net loss $ (168,911 ) $ (77,240 ) $ (91,671 )




Revenue



The decrease in total revenue was primarily due to the timing of research
activities under the HIV and TB grants with the Bill & Melinda Gates Foundation.



Research and Development Expenses



The following table shows the primary components of our research and development
expenses for the periods presented:






Three Months Ended March 31,
2021 2020 Change
(in thousands)
Licenses, collaborations and contingent
consideration $ 53,013 $ 32,995 $ 20,018
Personnel 25,803 14,409 11,394
Contract manufacturing 11,320 1,685 9,635
Clinical costs 29,734 3,221 26,513
Other 15,000 12,669 2,331



Total research and development expenses $ 134,870 $ 64,979 $ 69,891





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This increase in research and development expenses was primarily due to the
following factors:




• clinical costs increased $26.5 million, which was primarily attributable to
activities related to our VIR-7831 and VIR-2218 clinical trials;


• licenses, collaborations and contingent consideration expenses increased by
$20.0 million, which was primarily attributable to increases of $33.8
million
related to the change in fair value of the contingent consideration
from our acquisition of Humabs Biomed SA, and $18.5 million in costs under
our collaboration with GSK, partially offset by $31.8 million decrease due
to achievement of the first development milestone under our collaboration
agreement with Alnylam Pharmaceuticals, Inc., or Alnylam, in the first
quarter of 2020;


• personnel-related expenses increased by $11.4 million, which was primarily
attributable to an increase in our headcount;


• contract manufacturing expense increased by $9.6 million, which was
primarily related to initiation of manufacturing activities and process
development for our COVID-19 programs; and


• other research and development expenses increased by $2.3 million, which
was primarily attributable to increase in the allocation of facilities and
other costs due to an increase in our headcount.



General and Administrative Expenses



The increase in general and administrative expenses was primarily due to
increases in personnel-related expenses related to additional headcount, legal
fees, and external consulting expenses.



Interest Income



The decrease in interest income was primarily due to lower interest rates and
higher amortization of premium on investment balances in the three months ended
March 31, 2021 compared to the same period in 2020.



Other Income (Expense), Net



The increase in other expense was primarily related to the change in fair value
of the contingent consideration related to our acquisition of TomegaVax.



Liquidity, Capital Resources and Capital Requirements



Sources of Liquidity



As of March 31, 2021, excluding restricted cash, we had $733.0 million in cash,
cash equivalents and short-term investments, and an accumulated deficit of
$836.1 million. To date, we have financed our operations primarily through sales
of our common stock from our initial public offering and follow-on offering;
sales of our convertible preferred securities; and payments received under our
grant and collaboration agreements.



In November 2020, we entered into a sales agreement, or the Sales Agreement,
with Cowen and Company, LLC, or Cowen, pursuant to which we may from time to
time offer and sell shares of our common stock for an aggregate offering price
of up to $300.0 million, through or to Cowen, acting as sales agent or
principal. As of March 31, 2021, no shares have been issued under the Sales
Agreement.



In March 2021, in connection with the 2021 Preliminary Agreement with GSK, we
issued 1,924,927 shares of our common stock to Glaxo Group Limited (an affiliate
of GSK), or GGL, for an aggregate purchase price of approximately $120.0
million
. In addition, in April 2021, we received $112.5 million of the total
upfront fee under the 2021 Preliminary Agreement with GSK.



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 early clinical trials, and to
a lesser extent, general and administrative expenditures.



Future Funding Requirements



Based upon our current operating plan, we believe that our existing cash, cash
equivalents and short-term investments as of March 31, 2021 will enable us to
fund our operations through at least the next 12 months from the issuance date
of the condensed consolidated financial statements included elsewhere in this
Quarterly Report on Form 10-Q. However, our operating plan may change as a
result of many factors currently unknown to us, and we may need to seek
additional funds sooner than planned. Moreover,




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it is particularly difficult to estimate with certainty our future expenses
given the dynamic and rapidly evolving nature of our business and the COVID-19
pandemic environment generally. We will also 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 anticipate
raising additional capital through the sale of our equity securities, incurring
debt, entering into collaboration, licensing or similar arrangements with third
parties, or receiving research contributions, grants or other sources of
financing to fund our operations. 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. Debt financing and preferred equity
financing, if available, may involve agreements that include covenants limiting
or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. If we raise
funds through collaborations, licenses and other similar arrangements with third
parties, we may have to relinquish valuable rights to our technologies, future
revenue streams, research programs or product candidates or grant licenses on
terms that may not be favorable to us and/or may reduce the value of our common
stock. There can be no assurance that sufficient funds will be available to us
on attractive terms or at all. If we are unable to obtain additional funding
from these or other sources, it may be necessary to significantly reduce our
rate of spending through reductions in staff and delaying, scaling back, or
stopping certain research and development programs. Insufficient liquidity may
also require us to relinquish rights to product candidates at an earlier stage
of development or on less favorable terms than we would otherwise choose. In
addition, the COVID-19 pandemic continues to rapidly evolve and has already
resulted in a significant disruption of global financial markets. If the
disruption persists and deepens, we could experience an inability to access
additional capital, which could in the future negatively affect our capacity for
certain corporate development transactions or our ability to make other
important, opportunistic investments.



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. Our future funding requirements will depend on many factors,
including, but not limited to:




• the timing, progress and results of our ongoing preclinical studies and
clinical trials of our product candidates;


• the scope, progress, results and costs of preclinical development,
laboratory testing and clinical trials of other product candidates that we
may pursue;


• our ability to establish and maintain collaboration, license, grant and
other similar arrangements, and the financial terms of any such
arrangements, including the timing and amount of any future milestone,
royalty or other payments due thereunder;


• the costs, timing and outcome of regulatory review of our product candidates;


• the costs and timing of future commercialization activities, including
product manufacturing, marketing, sales and distribution, for any of our
product candidates for which we receive marketing approval;


• the revenue, if any, received from commercial sales of our product
candidates for which we receive marketing approval;


• the costs and timing of preparing, filing and prosecuting patent
applications, maintaining and enforcing our intellectual property rights
and defending any intellectual property-related claims;


• any expenses needed to attract, hire and retain skilled personnel;


• the costs of operating as a public company; and


• the extent to which we acquire or in-license other companies' product
candidates and technologies.



Cash Flows



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






Three Months Ended March 31,
2021 2020
(in thousands)
Net cash provided by (used in):
Operating activities $ (89,529 ) $ (48,409 )
Investing activities 87,534 104,219
Financing activities 87,503 85


Net increase in cash and cash equivalents and restricted



cash and cash equivalents $ 85,508 $ 55,895




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Operating Activities



During the three months ended March 31, 2021, net cash used in operating
activities was $89.5 million. This consisted primarily of a net loss of $168.9
million
, partially offset by a decrease in our net operating assets of $16.1
million
and non-cash charges of $63.2 million. The change in our net operating
assets of $16.1 million was primarily due to an increase in deferred revenue of
$35.4 million related to upfront fee received under the 2021 Preliminary
Agreement with GSK, which was partially offset by decreases in accrued
liabilities and other long-term liabilities by $18.8 million and in accounts
payable by $1.3 million due to timing of payments. The non-cash charges of $63.2
million
primarily consisted of $44.5 million for revaluation of contingent
consideration, $15.5 million for stock-based compensation expense, and $1.3
million
for depreciation and amortization.



During the three months ended March 31, 2020, net cash used in operating
activities was $48.4 million. This consisted primarily of a net loss of $77.2
million
and an increase in our net operating assets of $0.8 million, partially
offset by non-cash charges of $29.6 million. The change in our net operating
assets of $0.8 million was primarily due to a decrease in deferred revenue of
$3.2 million related to revenue recognized from the Bill & Melinda Gates
Foundation
grants and a decrease in accrued liabilities and other long-term
liabilities of $10.2 million, which was partially offset by an increase of $12.9
million
in accounts payable. The non-cash charges of $29.6 million primarily
consisted of $3.0 million for stock-based compensation expense, $16.8 million
for the change in fair value of the derivative liability under our collaboration
and license agreement with Alnylam, $7.2 million for revaluation of contingent
consideration and $1.0 million for depreciation and amortization.



Investing Activities



During the three months ended March 31, 2021, net cash provided by investing
activities was $87.5 million. This consisted primarily of $93.2 million in
proceeds received from investments which matured during the period, partially
offset by purchases of investments of $5.0 million.



During the three months ended March 31, 2020, net cash provided by investing
activities was $104.2 million. This consisted primarily of $145.8 million in
proceeds received from investments which matured during the period, partially
offset by purchases of investments of $40.5 million and purchases of property
and equipment of $1.3 million.



Financing Activities



During the three months ended March 31, 2021, net cash provided by financing
activities was $87.5 million. This consisted primarily of proceeds received from
the issuance of our common stock to GGL of $85.2 million in March 2021 and from
exercises of stock options of $2.4 million.



Contractual Obligations and Commitments



There have been no material changes from the contractual obligations previously
disclosed in our Annual Report on Form 10-K for the year ended December 31,
2020
.



Off-Balance Sheet Arrangements



During the periods presented we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under the rules of the SEC. Brii
Biosciences Limited
, or Brii Bio Parent, and its wholly owned subsidiary, Brii
Biosciences Offshore Limited
, or Brii Bio, are variable interest entities due to
their reliance on future financing and insufficient equity at risk. However, we
do not have the power to direct activities that most significantly impact the
economic success of these entities and are not the primary beneficiary, and
therefore we do not consolidate Brii Bio Parent or Brii Bio.



Critical Accounting Policies and Estimates



Our unaudited condensed consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of our unaudited condensed 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.




40


--------------------------------------------------------------------------------



There have been no significant changes in our critical accounting policies
during the three months ended March 31, 2021, as compared with those previously
disclosed in our Annual Report on Form 10-K for the year ended December 31,
2020
, filed with the SEC on February 25, 2021.

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