VIR - Vir Biotechnology: A Relentless Slide In The Stock Unresponsive To Positive Developments

2023-11-08 11:27:49 ET

Summary

• VIR took a big hit in July with the failure of the company's trial in influenza, but the stock has continued to slide since.
• A new BARDA contract to develop a COVID antibody and another drug against a pathogen with pandemic potential has failed to lift the stock.
• Readouts from phase 2 work in Hepatitis B Virus and Hepatitis Delta patients are expected in Q4'23.

Vir Biotechnology ( VIR ) is a biotech developing drugs for infectious disease. A tough result in July with its influenza therapeutic saw the stock cut in half, and selling has continued since, leading the valuation into very interesting territory (negative enterprise value of hundreds of millions). Despite that, the stock is unresponsive to positive news, such as an award of funds from Biomedical Advanced Research and Development Authority (BARDA) to develop a COVID therapeutic. This article take a look at what's going on and if the slide can stop.

Figure 1: Year-to-date trading of VIR.

Influenza: A bit of a letdown

The big hit for VIR came in July, when the company announced the Phase 2 PENINSULA study, of VIR-2482 for the prevention of Influenza A, failed to meet the primary or secondary efficacy endpoints. VIR's Influenza candidates, VIR-2482 and VIR-2981 still appear on the company's pipeline slide, but I'm not too enthusiastic about VIR-2482 given its failure this year, and VIR-2981 appears ready for phase 1, but so far we have nothing much to examine.

COVID: Apparently not exciting

It hasn't been all doom and gloom, however. On October 3, VIR company announced it had been awarded $50M in new funds from the Biomedical Advanced Research and Development Authority (BARDA) to develop an COVID antibody and an antibody against another pathogen with pandemic potential. The company has brought in revenues in years gone by from its COVID-19 antibody sotrovimab, and while that drug isn't bringing in much nowadays, with BARDA providing funds giving VIR the opportunity to do that again, you'd think the market would be excited, but there has been little reaction. In particular, the $50.1M award consists of $40M that will be used to develop VIR-7229, a monoclonal antibody that neutralizes COVID-19, through phase 1, and $10.1M to support the discovery of new monoclonal antibodies against another pathogen.

Hepatitis: Promise shown, catalysts ahead

With the influenza data disappointing and the market not managing much of a reaction to the COVID news, where that leaves the company for the rest of 2023 is pretty clear. VIR plans to report data from its ongoing work of its Hepatitis B virus (HBV) therapeutics, which also have potential in Hepatitis Delta ((HD)). HD is an infection that occurs in patients with HBV and worsens prognosis. The stock market doesn't seem to be that excited about VIR's potential data, however, with the stock continuing to slide rather than run up, as we have entered Q4'23.

VIR has been running a clinical trial called MARCH in HBV patients. Part A of that study already produced results treating patients with the combination of an siRNA directed against the virus, VIR-2218, and an antibody that blocks entry of HBV and HD into hepatocytes, VIR-3434. VIR-2218 was developed by Alnylam ( ALNY ), who has the opportunity to opt in following phase 2, to become an economic partner (VIR would retain control over clinical development). VIR-3434 incorporates Xencor's ( XNCR ) Fc region technologies to enhance immune response and extend the half-life of the antibody.

What Part A of the MARCH trial showed was that treatment with VIR-2218 and VIR-3434 resulted in 2.7-3.1 log unit reduction in HBV surface antigen (HBsAg) levels at the end of treatment. Importantly, the treatment duration in Part A was only five or 12 weeks, and so with Part B treating patients for 24 or 48 weeks, the end of treatment data, expected in Q4'23, might be particularly striking.

Financial Overview

VIR had $1.7B in cash as of September 30 , 2023. Total revenues for Q3'23 were just $2.6M, with meaningful revenues from sotrovimab, the company's COVID-19 antibody, a thing of the past. R&D expenses for Q3'23 were $148.3M ($15.8M of which was non-cash stock-based compensation expense), and SG&A expenses were $41.1M (of which $11.1M was non-cash stock-based compensation expense). Net loss was $163.4M for Q3'23, and net cash used in operating activities was $670.9M in the first 9 months of 2023, although the fall in sales of sotrovimab has been costly, resulting in VIR making payments to GSK as a result of excess supply and manufacturing capacity.

Notably, in Q2'23, VIR made a payment of $273.6M to Glaxo Smith Klein ( GSK ) for excess sotrovimab supply and manufacturing capacity. VIR noted at the time a balance of $69.7M remained. In Q3'23, VIR appears to have paid down most of this balance with a payment of $67M made to GSK. Going forward, I expect these payments to be minimal and less of a drain on VIR's cash. Notably, VIR's 10-Q states that the company has "reserved $0.9 million as accrued liability for its share of the remaining estimated manufacturing expenses related to excess sotrovimab supply and binding reserved manufacturing capacity not utilized."

As of October 27, 2023, there were 134,521,285 shares of VIR's common stock outstanding, corresponding to a market cap of $1.14B ($8.44). There were also 10.6M options issues and outstanding and 5.1M restricted shares subject to future vesting. VIR had $13.6M of current liabilities and $114.1M ($127.7M total) of noncurrent liabilities related to its operating lease, but no real debt. Indeed, page 34 of VIR's 10-Q notes, "We had no debt outstanding as of September 30, 2023." Regarding the operating lease liabilities as debt or not, VIR's enterprise value is pretty striking.

Conclusions

I think Q4'23 data from VIR's ongoing phase 2 work in HBV and HD could be the turning point for VIR's stock. Notably, I expect longer treatment with VIR-2218/VIR-3434 to result in greater reductions in HBsAg, which will drive speculation that VIR can achieve functional cure rates well in excess of what is available with current treatments (less than 7%). I rate VIR a buy, as data from its clinical studies should be close.

A primary risk is that data from VIR's studies disappoints, if longer treatment with combination therapy doesn't result in any greater benefit that has already been seen, than VIR's stock is going to fall. While the current benefit offered is already promising, that is already built into the stock.

Further, the stock will fall if toxicity issues are seen with the VIR-2218/VIR-3434 data. While there isn't a clear safety signal seen so far that concerns me, and VIR-2218 has been used at higher doses than it is being used currently, it is always a possibility that an issue appears with more patients being treated.

Lastly VIR may continue to slide due to tax loss selling, with the name down heavily year-to-date and down for even recent buyers of the stock. If VIR's data is delayed, there would need to be some other unexpected catalyst to boost the stock, but VIR has clearly laid out the timeline for results from its clinical studies, earnings have passed, and so I'm not aware of any such catalyst.

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