VIR - Vir Biotechnology Sneezes On Flu Data But May Be Worth Holding

2023-07-21 09:48:40 ET

Summary

• Vir Biotechnology's stock fell by 44% following disappointing Phase 2 trial results for its influenza A preventive treatment, VIR-2482.
• Despite a decrease in total revenues from $1.2 billion in Q1 2022 to $63 million in Q1 2023, Vir maintains a healthy capital structure.
• Despite setbacks, Vir Biotechnology's promising pipeline, including potential Hepatitis B and D treatments, may offer a future recovery path.

Introduction

Vir Biotechnology (VIR), a commercial-stage immunology firm , leverages immunologic insights and advanced technologies to develop therapies for serious infectious diseases. With a focus on revealing immune system limitations and pathogen vulnerabilities, Vir's innovative approach is demonstrated in its diverse pipeline of product candidates. Its efforts center around creating scalable, cost-effective treatments for global impact.

Vir gained recognition for sotrovimab (Xevudy) during the pandemic. While it received EUA in 2021, its US authorization was later revoked due to Omicron BA.2. Nevertheless, the company delivered over 2.1 million doses worldwide by the end of 2022 and is now assessing its effectiveness against new variants.

Recent developments: On Thursday, Vir Biotechnology's stock fell 44% after its Phase 2 trial for influenza A preventive treatment, VIR-2482, failed to meet primary goals. Further analysis is planned.

The following article assesses Vir's prospects in light of these recent developments.

Financial Performance

Taking a look at financials: For Q1 2023, Vir Biotechnology reported total revenues of $63 million, a decrease from $1.2 billion in Q1 2022 due to lower collaboration revenue from sotrovimab sales. However, grant revenue saw a significant increase. Research and development expenses rose due to investments in clinical programs, particularly VIR-2482. The net loss for Q1 2023 was $140.9 million, compared to a net income of $518.6 million in Q1 2022. Vir recently disclosed having $1.9 billion at the end of the second quarter.

Stock Assessment

Per Seeking Alpha data, VIR is underperforming, with an overall negative earnings trend. Its FY 2023-2025 estimates project decreasing EPS and sales, except for a recovery in sales expected in 2025, but this may have taken a hit following the influenza news. Earnings revisions are predominantly downward, indicating analysts have growing concerns about the company's profitability.

Valuation indicators are non-measurable due to negative earnings, though the company's Price/Book and EV/Sales ratios appear reasonable. The stock's momentum shows underperformance relative to the S&P 500 across different periods, with significant loss over the last year.

However, the company is exhibiting strong growth rates, with significant three-year revenue CAGR and a substantial increase in levered free cash flow YoY. Despite the poor profitability metrics, including negative profit margins and negative returns, Vir maintains a healthy capital structure with a substantial cash position and relatively low debt, resulting in an enterprise value of around -$72 million. Overall, the company's performance suggests risk but also potential for future recovery.

Phase 2 Influenza Antibody Trial Results

In the Phase 2 PENINSULA trial (NCT05567783), researchers investigated the preventive effects of a monoclonal antibody against influenza A in an outpatient setting, marking the first study of its kind. The trial enrolled around 3,000 unvaccinated adults between the ages of 18 and 64, all of whom had no risk factors for severe influenza complications. The primary measure of efficacy was the ratio of participants who developed protocol-defined, PCR-confirmed influenza A infection compared to those who received a placebo. Secondary measurements included the proportions of participants who contracted CDC or WHO-defined, PCR-confirmed influenza A infections.

According to the results presented by Vir Biotechnology, high-dose VIR-2482 demonstrated a relative risk reduction of 15.85% for the primary endpoint, Influenza-Like-Illness [ILI] as per the study's protocol, compared to the placebo group. However, this difference did not reach statistical significance (p-value=0.56). For the secondary endpoints, the treatment showed more promising results, achieving a 57.23% relative risk reduction for CDC-defined ILI and a 44.13% reduction for WHO-defined ILI. This suggests potentially stronger effectiveness in these specific categories.

Vir Biotechnology's HBV & HDV Trials

Outside of influenza, Vir Biotechnology is focusing on developing VIR-2218 and VIR-3434 for the functional cure of Hepatitis B Virus (HBV) and chronic treatment of Hepatitis D Virus ((HDV)). Both drugs, which have direct antiviral activity and potential to stimulate immune response, are being evaluated in several trials.

For HBV, VIR-2218 demonstrated promising initial results in its ongoing Phase 2 trial with a functional cure achieved in a considerable proportion of participants. VIR-3434 showed rapid reduction of HBV DNA in a majority of participants after a single dose.

A Phase 2 trial to evaluate VIR-2218 and VIR-3434 in combination for HBV is ongoing, with initial results showing significant HBsAg reductions and generally well-tolerated treatment.

For HDV, considered the most severe form of viral hepatitis, VIR-2218 and VIR-3434 are being evaluated in the Phase 2 SOLSTICE trial. Both drugs work by inhibiting HBsAg, crucial for the HDV lifecycle. Initial data for this trial is expected later this year.

Vir Biotechnology's Stock Plunge: Trial Impact

The sharp decline in Vir Biotechnology's stock is likely due to investors recalibrating their expectations following the disappointing results from the VIR-2482 trial. Despite the company's extensive cash holdings and promising treatments for HBV and HDV, the market is possibly pricing in the risk and uncertainties associated with drug development and commercialization.

The perception of increased risk could be reflecting in the company's negative enterprise value. While these pipeline treatments show promise, they are yet to secure regulatory approval and commercial success, which introduces potential hurdles and uncertainties. Therefore, the market might be skeptical about the company's ability to translate these developments into profitable outcomes.

Investor sentiment is significantly influenced by clinical trial results, and the influenza trial setback might have amplified concerns about the company's overall research and development strategy. Future performance will likely depend on the successful progression and positive results of their ongoing trials.

My Analysis & Recommendation

In conclusion, Vir Biotechnology has weathered a challenging time with the disappointing results of the Phase 2 trial for its influenza vaccine, VIR-2482, leading to a significant drop in its stock price. This setback, however, does not necessarily forecast the company's future trajectory. Even though the primary objectives of the trial were not met, certain secondary outcomes demonstrated potential efficacy, indicating a possible way forward in the development of this treatment.

Investors should closely observe the progression of Vir's pipeline beyond influenza in the coming weeks and months. The company's efforts to tackle Hepatitis B and D Viruses (HBV and HDV) with VIR-2218 and VIR-3434 are of particular interest. The initial trial results for these treatments have shown promise, and if these drugs successfully navigate regulatory hurdles and achieve commercial viability, they could make a significant impact on Vir's position in the market.

Looking ahead, Vir's pathway includes not only reassessment and potential refinement of its influenza vaccine, but also a continued push on its HBV and HDV candidates. Despite decreased revenues compared to the previous year, largely due to a drop in sotrovimab sales, the company's strong cash position and low levels of debt offer some assurance of its financial stability in the near term.

While Vir's stock is currently underperforming, and its future profitability remains uncertain, the company's considerable cash holdings, promising pipeline, and current undervaluation based on enterprise value could still make it a compelling prospect for risk-tolerant investors. However, the success of its pipeline drugs is critical to its long-term recovery and a key point of attention.

Given these considerations, I would recommend investors maintain a 'Hold' position on Vir Biotechnology. This stance reflects the company's current challenges and uncertainties but acknowledges its potential for recovery based on its promising pipeline and strong financial foundation. It also allows for a strategy of patience, to see how the company progresses with its clinical trials before making any further investment decisions. Yet, it is crucial for investors to stay informed about the company's ongoing trials and financial position, as much of Vir's value is tied to the successful outcome of its pipeline drugs.

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