VIR BIOTECHNOLOGY, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)

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, 2021. 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.

Insight

We are a commercial-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 coronavirus disease 2019, or COVID-19, pandemic. We
believe that now is the time to apply the recent and remarkable advances in
immunology to combat current and prepare for future 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 pipeline consists of sotrovimab (previously VIR-7831; and where
marketing authorization has been granted, marketed under the brand name Xevudy®)
and other product candidates targeting COVID-19, hepatitis B virus, or HBV,
hepatitis D virus, or HDV, 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 and commercialization. Given the global impact
of infectious diseases, we are committed to developing cost-effective treatments
that can be delivered at scale.

General

In September 2022, the Biomedical Advanced Research and Development Authority,
or BARDA, part of the U.S. Department of Health and Human Services', or HHS,
Administration for Strategic Preparedness and Response, or ASPR, awarded us a
multi-year contract with the potential for an investment of up to $1.0 billion
to advance the development of a full portfolio of innovative solutions to
address influenza and potentially other infectious disease threats. The initial
investment of approximately $55.0 million will support the ongoing and rapid
development of VIR-2482, an investigational prophylactic monoclonal antibody
designed with the aim to protect against seasonal and pandemic influenza A.

In September 2022, as part of our 2021 expanded collaboration agreement with GSK
that built on the companies' 2020 collaboration agreement for COVID-19, GSK
opted-in to exclusively collaborate on the development and commercialization of
antibodies against respiratory syncytial virus, or RSV.

COVID-19[feminine]

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

In the third quarter of 2022, approximately 230,000 doses of sotrovimab have been delivered, all to countries other than the United States. Sotrovimab currently has Emergency Use Authorization, Temporary Authorization, or Marketing Authorization (under the brand name Xevudy®?) for the early treatment of COVID-19 in more from 40 countries, and remains in use outside the United States.

As part of our and GSK’s ongoing efforts with sotrovimab:

o
The companies continue to conduct in vitro testing of sotrovimab against new
variants and subvariants as they emerge, and to collect and evaluate real-world
evidence, both of which are being shared with regulatory authorities
.

o

In August 2022the Phase 3 Prophylaxis Platform Trial for Prophylaxis of Patients at Risk of COVID-19 Infection (PROTECT-V) sponsored by Cambridge University Hospitals National Health Service, or NHS, Foundation Trust evaluation of the use of a 2 g dose of sotrovimab in high-risk uninfected individuals has been initiated. The first data is expected in the second half of 2023.

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In preparation for new waves of COVID-19 variants and for future pandemics, we
and GSK continue to actively pursue the evaluation of innovative next-generation
therapy options for COVID-19 and other respiratory diseases.

Hepatitis B virus (HBV) and hepatitis D virus (HDV)

VIR-2218 is an experimental siRNA targeting HBV. VIR-3434 is an investigational HBV neutralizing mAb that incorporates Xencor’s Xtend and other Fc technologies.

In October 2022, we announced multiple abstracts (two oral presentations, one
poster and one late-breaker poster featuring real-world data from a 20-year
trial evaluating treatment patterns for chronic HBV) were accepted for
presentation at the American Association for the Study of Liver Diseases, or
AASLD, The Liver Meeting® 2022, taking place November 4-8, 2022. Both oral
presentations have been selected by AASLD for inclusion in the "Best of the
Liver Meeting" summary.

Initial data from Part B of the ongoing Phase 2 Monoclonal Antibody siRNA
Combination against Hepatitis B (MARCH) trial evaluating VIR-2218 in combination
with VIR-3434 for 24 and 48 weeks, and in triple combination with VIR-3434 and
interferon for 24 and 48 weeks, are expected in the second half of 2023.
Previously reported results from the MARCH Part A trial demonstrated that the
combination of VIR-3434 and VIR-2218 resulted in an approximate 3 log decline in
hepatitis B surface antigen, or HBsAg, with no safety signals reported to date.

Initiation of the Phase 2 PREVAIL platform trial and its THRIVE/STRIVE
sub-protocols of VIR-2218 in combination with VIR-3434 in viremic patients is
expected in the fourth quarter of 2022, with initial data expected in the second
half of 2023.

Initial data from the Phase 2 trial led by Brii Biosciences Offshore Limited, or
Brii Bio, evaluating VIR-2218 in combination with BRII-179, an investigational T
cell vaccine, for the potential treatment of chronic HBV infection are expected
by the end of 2022.

In September 2022, we initiated the Phase 2 SOLSTICE trial evaluating VIR-2218
and VIR-3434 as monotherapy and in combination for the treatment of people
living with chronic HDV, the most aggressive form of viral hepatitis. The trial
is assessing the ability of the combination to reduce HDV viremia and block
viral entry, which recent research suggests could be effective in suppressing
chronic HDV infection. Initial data are expected in the second half of 2023.

Influenza A virus

VIR-2482 is an investigational mAb designed for the prevention of influenza A that incorporates Xencor’s Xtend technology.

In October 2022, we initiated the Phase 2 Prevention of Illness Due to Influenza
A (PENINSULA) trial in healthy volunteers aged 18 to 64 to evaluate the safety,
tolerability and efficacy of two different intramuscularly administered doses of
VIR-2482 in preventing illness due to influenza A. This is the first trial to
evaluate the role of a monoclonal antibody in the prevention of influenza A
illness. The primary efficacy endpoint is the proportion of trial participants
with protocol-defined influenza-like illness with confirmed influenza A
infection compared to placebo. Other endpoints will evaluate the effect of
VIR-2482 on the severity and duration of illness in trial participants with
confirmed influenza A compared to placebo. Initial data are expected in
mid-2023. The PENINSULA trial is being funded in part with federal funds from
HHS; ASPR; BARDA, under OT number: 75A50122C00081.

In September 2022, we have initiated a phase 1b prophylaxis trial evaluating the safety of VIR-2482 in elderly participants (65 years and older) receiving an influenza vaccine. This population is representative of our planned Phase 3 trial population. The first data are expected in mid-2023.

HIV

VIR-1111 is an experimental T-cell HIV vaccine based on human cytomegalovirus, or HCMV. VIR-1388 is an HCMV-based preclinical T-cell HIV vaccine.

Safety and immunology data from the initial two cohorts of the proof-of-concept
Phase 1 trial of VIR-1111 show no safety signals and no vector shedding or
viremia reported to date. No sustained HIV insert-specific T-cell responses have
been observed in the lower dose cohorts 1 and 2. Safety and immunology data from
the highest dose cohort 3 are expected in the first half of 2023. This trial is
being funded in part by the Bill and Melinda Gates Foundation.

Learnings from VIR-1111 have informed the design of VIR-1388, a next generation
candidate, for which we expect to initiate a Phase 1 trial in the second half of
2023. This trial is being funded in part by the Bill and Melinda Gates
Foundation and the National Institutes of Health's Division of AIDS, through the
HIV Vaccine Trials Network.

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Financial overview

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 clinical trials.

We have financed our operations primarily through sales of our common stock from
our initial public offering, subsequent follow-on offering and convertible
preferred securities, and payments received under our grant and collaboration
agreements. As of September 30, 2022, we had $2.4 billion in cash, cash
equivalents, and investments. Based upon our current operating plan, we believe
that the $2.4 billion as of September 30, 2022 will enable us to fund our
operations for at least the next 12 months. However, our operating plan may
change as a result of many factors currently unknown to us, and we may need to
seek additional financing to fund our long-term operations sooner than planned.
See the section titled "Liquidity, Capital Resources and Capital
Requirements-Future Funding Requirements" below for additional information.

Although we recorded net income for the year ended December 31, 2021 and the
three and nine months ended September 30, 2022, we have otherwise incurred net
losses since inception and may continue to incur net losses in the foreseeable
future. To date, sotrovimab has been granted EUA, temporary authorization or
marketing approval (under the brand name, Xevudy®) in more than 40 countries.
Although we have an EUA from the FDA for sotrovimab, the FDA has excluded the
use of sotrovimab in all U.S. regions due to the continued proportion of
COVID-19 cases caused by certain Omicron subvariants. With this EUA revision,
sotrovimab is not currently authorized for use in any U.S. region. In light of
these developments, we cannot predict whether (if at all) or to what extent
sotrovimab may be reauthorized for use by the FDA in any U.S. region in the
future. Furthermore, due to the evolving COVID-19 landscape and based on
discussions with the FDA, we and GSK do not plan to file a BLA for sotrovimab at
this time. In September 2022, the World Health Organization, or WHO, issued new
guidance strongly recommending against the use of sotrovimab in patients with
non-severe COVID-19 on the basis that it is unlikely to work against currently
circulating variants and subvariants. Although certain countries outside of the
U.S., such as Canada and Japan, continue to maintain access to sotrovimab 500 mg
IV while noting that it is unlikely to maintain efficacy against certain Omicron
subvariants, we cannot predict whether countries will align with the WHO
recommendation (if at all) and further limit the use of sotrovimab. We have not
obtained regulatory approval for any other product candidates, and we do not
expect to generate significant revenue from the sale of our other product
candidates until we complete clinical development, submit regulatory filings and
receive approvals from the applicable regulatory bodies for such product
candidates, if ever.

We had net income of $617.4 million and $3.3 million for the nine months ended
September 30, 2022 and 2021, respectively. As of September 30, 2022, we had
retained earnings of $478.8 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 clinical trials, and to a lesser extent, selling, 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. Although we began recognizing revenue for
sotrovimab and have substantial deferred revenue under our definitive
collaboration agreement with GSK executed in May 2021, or the 2021 GSK
Agreement, we may continue to incur net operating losses for at least the next
several years as the extent of future revenue remains uncertain. 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, and 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 functions 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 process
development, manufacturing and quality capabilities and are working with
contract development and manufacturing organizations, or CDMOs, to supply our
early- and late-stage product candidates in the near term. We continue to expand
our internal capabilities and resources in process development, analytical
development, quality, manufacturing and supply chain, which are supported by our
San Francisco, California, and Portland, Oregon facilities that include
laboratories for 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 collaborator GSK have executed manufacturing
agreements with CDMOs having large-scale capacity to support future scale-up and
product supply, particularly for potential commercialization.

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COVID-19 Business Update

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
now offer all of our employees the choice of working full time in the office, a
hybrid approach, or full-time remote. As a result, we expect to continue to be
subject to the challenges and risks of having a remote workforce, as well as new
challenges and risks from operating with a hybrid workforce. 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. However, there are no assurances that our manufacturing and supply
chain infrastructure will remain uninterrupted and reliable, or that the CDMOs
will be able to satisfy demand in a timely manner and not have supply chain
disruptions due to COVID-19 related shutdowns, stock-outs due to raw material
shortages and/or greater than anticipated demand or quality issues given the
operational challenges and raw material shortages that have been experienced
during the COVID-19 pandemic. 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 collaboration, license and grant agreements

We have entered into collaboration, license and grant 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

To date, sotrovimab has been granted EUA, temporary authorization or marketing
approval (under the brand name, Xevudy®) in more than 40 countries. Although we
have previously recognized revenue from our profit-share under our definitive
collaboration agreement with GSK executed in June 2020, or the 2020 GSK
Agreement, related to sotrovimab, we may continue to incur net operating losses
for at least the next several years as the extent of future revenue from the
sale of sotrovimab remains uncertain. Although we have an EUA from the FDA for
sotrovimab, the FDA has excluded the use of sotrovimab in all U.S. regions due
to the continued proportion of COVID-19 cases caused by certain Omicron
subvariants. With this EUA revision, sotrovimab is not currently authorized for
use in any U.S. region. In September 2022, the WHO issued new guidance strongly
recommending against the use of sotrovimab in patients with non-severe COVID-19
on the basis that it is unlikely to work against currently circulating variants
and subvariants. Although certain countries outside of the U.S., such as Canada
and Japan, continue to maintain access to sotrovimab 500 mg IV while noting that
it is unlikely to maintain efficacy against certain Omicron subvariants, we
cannot predict whether countries will align with the WHO recommendation (if at
all) and further limit the use of sotrovimab. In addition, due to the evolving
COVID-19 landscape and based on discussions with the FDA, we and GSK do not plan
to file a BLA for sotrovimab at this time. In light of these developments, we
cannot predict whether (if at all) or to what extent sotrovimab may be
reauthorized for use by the FDA in any U.S. region in the future. In addition,
we have not obtained regulatory approval for any other product candidates, and
we do not expect to generate any significant revenue from the sale of our other
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 revenues consist of the following:

Collaboration revenue includes recognition of our profit-share from the sales of
sotrovimab pursuant to the 2020 GSK Agreement. Our contractual share of 72.5%
from the sales of sotrovimab is applied to the net sales reported in the period
by GSK, net of cost of goods sold and allowable expenses from both GSK and us
(e.g., manufacturing, distribution, medical affairs, selling, and marketing
expenses). In order to record collaboration revenue, we utilize certain
information from our collaboration partner, including actual net product sales
and costs incurred for sales activities, and make key judgments based on
business updates related to commercial and clinical activities such as expected
commercial demand, commercial supply plan, manufacturing commitments, risks
related to expired or obsolete inventories, and risks related to potential
product returns or contract terminations.

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Constraint on variable consideration

In May 2021, the FDA granted an EUA in the U.S. for sotrovimab. In April 2022,
the FDA excluded the use of sotrovimab in all U.S. regions due to the continued
proportion of COVID-19 cases caused by certain Omicron subvariants. As the lead
party for all manufacturing and commercialization activities, GSK incurs all of
the manufacturing, sales and marketing expenses and is the principal on sales
transactions with third parties. Our accounting policy related to the
profit-share is to consider the agreed-upon share of the profit-sharing amounts
each quarter and evaluate whether those amounts are subject to potential future
adjustments based on the latest available facts and circumstances, subject to
the terms of the 2020 GSK Agreement.

As we are the agent under the 2020 GSK Agreement, we recognize our contractual
share of the profit-sharing amounts or royalties (in case of an opt-out) as
revenue, based on sales net of estimated various deductions such as rebates,
discounts, chargebacks, credits and returns, less cost of sales and allowable
expenses (including manufacturing, distribution, medical affairs, selling, and
marketing expenses) in the period the sale occurs. Manufacturing costs include
inventory revaluation adjustments, lower of cost or market inventory
adjustments, inventory write-downs and write-offs, and binding purchase
commitments with a third-party manufacturer among other manufacturing costs. Our
contractual share of the profit-sharing amounts is subject to potential future
adjustments to allowable expenses, which we account for as a form of variable
consideration.

As of September 30, 2022, GSK held certain potentially excess binding supply
manufacturing commitments of sotrovimab and reserved certain binding
manufacturing capacity potentially not expected to be utilized, which have not
yet been reported to us as allowable manufacturing expenses for the cumulative
profit-sharing amounts to date. We expect GSK to adjust allowable manufacturing
expenses for our share of the potential charge for excess supply write-offs and
unused binding manufacturing capacity and report to us as cost-sharing amounts
in future periods. We evaluated the latest available facts and circumstances to
determine whether any portion of profit-sharing amounts should be constrained.
In doing so, as of September 30, 2022, based on the current state of the
COVID-19 pandemic, including the continued proportion of cases caused by certain
Omicron subvariants, discussions with the FDA and other regulatory authorities,
and our expectations for future sales in light of these factors, we revised our
estimates and determined that $379.5 million should be constrained from
profit-sharing revenues earned in relation to the Company's anticipated
contractual share of potential future adjustments to manufacturing expenses and
recorded such amount as adjustments to profit-sharing amounts recognized in the
nine months ended September 30, 2022 and accrued and other liabilities. We will
re-assess these estimates each reporting period. Actual results could materially
differ from this estimate.

Contract revenue includes recognition of revenue generated from license rights
issued to GSK, from research and development services under other third-party
contracts, and from a clinical supply agreement with Brii Bio.

Grant revenue includes revenue from grant agreements with government-sponsored and private organizations.

License revenue from a related party is comprised of revenue related to Brii
Bio's exercise of its option to obtain exclusive rights to develop and
commercialize compounds arising from VIR-3434 in greater China recognized in the
period.

Operating Expenses

Cost of Revenue

Cost of revenue currently represents royalties earned by third-party licensors
on net sales of sotrovimab by us or our collaborators. We recognize these
royalties as cost of revenue when we recognize the corresponding revenue that
gives rise to payments due to our licensors.

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 primarily include costs incurred for our product candidates in development and prior to regulatory approval, which include:

expenses related to licensing and collaboration agreements and changes in the fair value of certain contingent consideration obligations arising from business acquisitions;

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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 meeting regulatory requirements; and

other allocated expenses, including expenses for rent and maintenance of facilities, and depreciation allowances.

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. To
date, sotrovimab has been granted EUA, temporary authorization or marketing
approval (under the brand name, Xevudy®) in more than 40 countries. Although we
have an EUA from the FDA for sotrovimab, the FDA has excluded the use of
sotrovimab in all U.S. regions due to the continued proportion of COVID-19 cases
caused by certain Omicron subvariants. With this EUA revision, sotrovimab is not
currently authorized for use in any U.S. region. In light of these developments,
we cannot predict whether (if at all) or to what extent sotrovimab may be
reauthorized for use by the FDA in any U.S. region in the future. In addition,
due to the evolving COVID-19 landscape and based on discussions with the FDA, we
and GSK do not plan to file a BLA for sotrovimab at this time. In September
2022, the World Health Organization, or WHO, issued new guidance strongly
recommending against the use of sotrovimab in patients with non-severe COVID-19
on the basis that it is unlikely to work against currently circulating variants
and subvariants . Although certain countries outside of the U.S., such as Canada
and Japan, continue to maintain access to sotrovimab 500 mg IV while noting that
it is unlikely to maintain efficacy against certain Omicron subvariants, we
cannot predict whether countries will align with the WHO recommendation (if at
all) and further limit the use of sotrovimab. Furthermore, COVID-19 treatment
standards are susceptible to rapid changes in epidemiology and the emergence of
new variants or subvariants, which may render sotrovimab inferior or obsolete in
the future.

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 significant revenue from the
commercialization and sale of any 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 can vary significantly depending on factors such as:

whether an employee pays part or all of the costs;

trial costs per patient;

the number of tests required for approval;

the number of sites included in the trials;

enrollment and retention of patients in trials in countries disrupted by geopolitical events, including civil or political unrest (such as the ongoing war between Ukraine and Russia);

the length of time required to enroll eligible patients;

the number of patients participating in the trials;

the number of doses patients receive;

patient attrition or default rates;

potential additional safety oversight requested by regulators;

the duration of patient participation in trials and follow-up;

the cost and timing of manufacturing our product candidates;

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the development phase of our product candidates; and

the efficacy and safety profile of our product candidates.

Selling, general and administrative expenses

Our selling, general and administrative expenses consist primarily of personnel expenses for management personnel, finance and other administrative functions, facilities and other allocated expenses, other expenses for outside professional services, including legal, auditing and accounting services, insurance costs and fair value foreign exchange of certain contingent consideration obligations arising from business acquisitions. Personnel expenses include salaries, benefits and stock-based compensation.

We expect our selling, general and administrative expenses to increase
substantially in absolute dollars in the foreseeable future as we continue to
support our research and development activities, and commercialization
activities for any of our product candidates, if approved, and to grow our
business. 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 Securities and Exchange
Commission, or SEC, and standards applicable to companies listed on a national
securities exchange, additional insurance expenses, investor relations
activities and other administrative and professional services.

Change in fair value of equity securities

Change in fair value of equity investments consists of the remeasurement of our
investment in Brii Biosciences Limited's, or Brii Bio Parent, ordinary shares
based on the quoted market price at each reporting date.

interest income

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

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

The provision for income taxes consisted primarily of income tax from our domestic and foreign operations.

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Operating results

Comparison of the three and nine month periods ended September 30, 2022 and 2021

The following table summarizes our operating results for the periods presented:

                            Three Months Ended
                               September 30,                               

Nine month period ended September 30,

                           2022             2021          Change             2022                   2021             Change
                                                                    (in thousands)
Revenue:
Collaboration revenue   $  309,145       $  102,398     $  206,747     $       1,483,860       $       107,731     $ 1,376,129
Contract revenue            39,998              315         39,683                52,534               169,581        (117,047 )
License revenue from
a related party             22,289                -         22,289                22,289                     -          22,289
Grant revenue                3,125              903          2,222                 7,704                 5,356           2,348
Total revenue              374,557          103,616        270,941             1,566,387               282,668       1,283,719
Operating expenses:
Cost of revenue             22,253            7,836         14,417               140,323                 8,988         131,335
Research and
development                114,166           98,669         15,497               319,475               319,665            (190 )
Selling, general and
administrative              43,174           50,496         (7,322 )             123,019               105,016          18,003
Total operating
expenses                   179,593          157,001         22,592               582,817               433,669         149,148
Income (loss) from
operations                 194,964          (53,385 )      248,349               983,570              (151,001 )     1,134,571
Other income
(expense):
Change in fair value
of equity investments      (13,590 )        164,072       (177,662 )            (120,019 )             164,072        (284,091 )
Interest income              9,332               11          9,321                11,920                   272          11,648
Other income
(expense), net              27,026               64         26,962                30,447                (9,430 )        39,877
Total other income
(expense)                   22,768          164,147       (141,379 )             (77,652 )             154,914        (232,566 )
Income before
provision for income
taxes                      217,732          110,762        106,970               905,918                 3,913         902,005
Provision for income
taxes                      (42,420 )           (334 )      (42,086 )            (288,478 )                (583 )      (287,895 )
Net income              $  175,312       $  110,428     $   64,884     $         617,440       $         3,330     $   614,110




Revenues

The increase in collaboration revenue for the three months ended September 30,
2022 compared to the same period in 2021 was due to an increase of $188.8
million in profit-sharing amount for the sale of sotrovimab under the 2020 GSK
Agreement and the release of $20.4 million from profit-sharing amount
constrained in the three months ended September 30, 2022, partially offset by
$2.4 million of profit-sharing amount constrained in the three months ended
September 30, 2022. The increase in collaboration revenue for the nine months
ended September 30, 2022 compared to the same period in 2021 was due to an
increase of $1.8 billion in profit-sharing amount for the sale of sotrovimab
under the 2020 GSK Agreement in the nine months ended September 30, 2022,
partially offset by $379.5 million of profit-sharing amount constrained in the
nine months ended September 30, 2022. Our contractual share of 72.5% from the
sales of sotrovimab is applied to the profit-sharing amounts, based on sales net
of various estimated deductions such as rebates, discounts, chargebacks, credits
and returns, less cost of sales and allowable expenses (including manufacturing,
distribution, medical affairs, selling, and marketing expenses) in the period
the sale occurs.

The increase in contract revenue for the three months ended September 30, 2022
compared to the same period in 2021 was primarily due to $39.8 million related
to GSK's selection of RSV as a first pathogen under the 2021 GSK Agreement,
which we refer to as the First Option Exercise. The decrease in contract revenue
for the nine months ended September 30, 2022 compared to the same period in 2021
was primarily due to $168.3 million related to the license granted to GSK upon
execution of the 2021 GSK Agreement in the second quarter of 2021, partially
offset by $39.8 million related to GSK's First Option Exercise, which had
previously been included in deferred revenue, and $7.0 million related to the
additional license granted to GSK in mainland China, Hong Kong, Macau and Taiwan
upon execution of the Amendment No. 1 to the 2020 GSK Agreement in the second
quarter of 2022.

The increase in license revenue from a related party for the three and nine
months ended September 30, 2022 was due to $22.3 million related to Brii Bio's
exercise of its option to obtain exclusive rights to develop and commercialize
compounds and products arising from VIR-3434 in China, Taiwan, Hong Kong and
Macau. No comparable amount was incurred for the same periods in 2021.

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The increase in grant revenue for the three and nine months ended September 30,
2022 compared to the same periods in 2021 was primarily due to the timing of
research activities under the grant agreements with the Bill & Melinda Gates
Foundation.

Cost of Revenue

The increase in cost of revenue for the three and nine months ended September
30, 2022 compared to the same periods in 2021 was due to third-party royalties
owed based on the sales of sotrovimab under the 2020 GSK Agreement.

Research and development costs

The following table presents the main components of our research and development expenses for the periods presented:

                                 Three Months Ended                       Nine Months Ended September
                                   September 30,                                      30,
                                2022            2021         Change          2022             2021         Change
                                                                 (in thousands)
Licenses, collaborations
and contingent
consideration                $   14,939       $  14,350     $     589     $   50,002       $   85,421     $ (35,419 )
Personnel                        38,580          28,763         9,817        116,426           82,591        33,835
Contract manufacturing           14,180           3,878        10,302         30,738           19,520        11,218
Clinical costs                   20,269          35,553       (15,284 )       52,172           81,700       (29,528 )
Other                            26,198          16,125        10,073         70,137           50,433        19,704
Total research and
development expenses         $  114,166       $  98,669     $  15,497     $  319,475       $  319,665     $    (190 )



Comparison of three months ended September 30, 2022 and 2021

The increase in research and development expenses for the three months ended
September 30, 2022 compared to the same period in 2021 was primarily due to the
following factors:

outsourcing expenses increased by $10.3 millionwhich was primarily related to an increase in manufacturing activities of our product candidates;

payroll expenses increased by $9.8 millionmainly attributable to an increase in our workforce;

other research and development expenses increased by $10.1 million, which was
primarily attributable to the allocation of facilities and other costs due to an
increase in our headcount and higher lease expenses;

licenses, collaborations and contingent consideration expenses increased by $0.6
million compared to the same period in 2021, which was primarily attributable to
an increase of $2.9 million related to the change in fair value of the
contingent consideration from our acquisition of Humabs Biomed SA, or Humabs,
partially offset by a decrease of $0.9 million in costs under our collaboration
agreements with GSK, and $1.3 million third-party milestone payments in the same
period of 2021;

partially offset by

•
a decrease of $15.3 million in clinical costs, which was primarily attributable
to activities related to the clinical trials for sotrovimab in the prior period,
partially offset by activities related to VIR-2482, VIR3434 and VIR-2218 in the
third quarter of 2022.

                                       42
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Comparison of the nine months ended September 30, 2022 and 2021

The decrease in research and development expenses for the nine months ended
September 30, 2022 compared to the same period in 2021 was mainly due to the following factors:

licenses, collaborations and contingent consideration expenses decreased by
$35.4 million, which was primarily attributable to a decrease of $22.7 million
in costs under our collaboration agreements with GSK, and $21.4 million related
to the change in fair value of the contingent consideration from our acquisition
of Humabs, partially offset by $7.0 million recognized in connection with the
termination of our development and manufacturing collaboration agreement with
WuXi Biologics (Hong Kong) Limited, or WuXi Biologics;

clinical costs decreased by $29.5 millionprimarily attributable to activities related to clinical trials of sotrovimab in the prior period;

partially offset by

an augmentation of $33.8 million payroll expenses, which are mainly explained by an increase in our workforce;

an augmentation of $11.2 million contract manufacturing expenses, which were primarily related to increased manufacturing activities for our product candidates in the current period; and

an increase of $19.7 million in other research and development expenses, which
was primarily attributable to the allocation of facilities and other costs due
to an increase in our headcount and higher lease expenses.

Selling, general and administrative expenses

The decrease in selling, general and administrative expenses for the three
months ended September 30, 2022 compared to the same period in 2021 was
primarily due to a $20.2 million increase in fair value of the contingent
consideration recorded in the third quarter of 2021 related to sales-based
milestones from our acquisition of Humabs, partially offset by higher
personnel-related expenses related to additional headcount, external consulting
services, business tax expenses related to increased profit-sharing amount and
allocated facilities costs due to higher lease expenses.

The increase in selling, general and administrative expenses for the nine months
ended September 30, 2022 compared to the same period in 2021 was primarily due
to higher personnel-related expenses related to additional headcount, external
consulting services, business tax expenses related to increased profit-sharing
amount and allocated facilities costs due to higher lease expenses.


Change in fair value of equity securities

In July 2021, Brii Bio Parent became a publicly traded company on the Stock
Exchange of Hong Kong Limited. In connection with the initial public offering,
our investment in shares of Brii Bio Parent became a marketable equity
investment and subsequently remeasured to fair value at each reporting period.
For the three and nine months ended September 30, 2022, we recognized an
unrealized loss of $13.6 million and $120.0 million, respectively, compared to
an unrealized gain of $164.1 million for the same periods in 2021.

interest income

The increases in interest income were primarily due to higher interest rates as
well as higher balances of short-term and long-term investments, partially
offset by higher amortization of premium on investment balances, in the three
and nine months ended September 30, 2022 compared to the same periods in 2021.

Other income (expenses), net

The increase in other income (expense), net for the three months ended September
30, 2022 compared to the same period in 2021 was primarily due to $26.0 million
unrealized gain from foreign exchange measurement related to the other liability
recognized in connection with the profit-sharing amount constrained under the
2020 GSK Agreement.

The increase in other income (expense), net for the nine months ended September
30, 2022 compared to the same period in 2021 was primarily due to $26.0 million
unrealized gain from foreign exchange measurement related to the profit-sharing
amount constrained under the 2020 GSK Agreement, and the change in fair value of
the contingent consideration related to our acquisition of TomegaVax.

                                       43
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Provision for income taxes

The increase in provision for income taxes for the three months ended September
30, 2022 compared to the same period in 2021 was primarily due to taxable income
for 2022 attributable to collaboration revenue under the 2020 GSK agreement and
the requirement under the Tax Cuts and Jobs Act of 2017 for taxpayers to
capitalize and amortize research and development expenditures over five or
fifteen years pursuant to Section 174 of the Internal Revenue Code of 1986, as
amended.

The increase in provision for income taxes for the nine months ended September
30, 2022 compared to the same period in 2021 was primarily due to taxable income
for 2022 attributable to collaboration revenue under the 2020 GSK agreement and
the requirement under the Tax Cuts and Jobs Act of 2017 for taxpayers to
capitalize and amortize research and development expenditures over five or
fifteen years pursuant to Section 174 of the Internal Revenue Code of 1986, as
amended.

Liquidity, capital resources and capital requirements

Sources of liquidity

To date, we have financed our operations primarily through sales of our common
stock from our initial public offering and subsequent follow-on offering; sales
of our convertible preferred securities; and payments received under our grant
and collaboration agreements. As of September 30, 2022, we had $2.4 billion in
cash, cash equivalents, and investments. As of September 30, 2022, we had
retained earnings of $478.8 million. We entered into a sales agreement, or the
Sales Agreement, with Cowen and Company, LLC, or Cowen, in 2020 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. We will pay Cowen a commission of up to 3.0% of the
aggregate gross proceeds from each sale of shares, reimburse legal fees and
disbursements and provide Cowen with customary indemnification and contribution
rights. As of September 30, 2022, no shares have been issued under the Sales
Agreement.

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

Future funding needs

Based upon our current operating plan, we believe that our existing cash, cash
equivalents and investments as of September 30, 2022 as noted above will enable
us to fund our operations for at least the next 12 months. However, our
operating plan may change as a result of many factors currently unknown to us,
and we may need to seek additional financing to fund our long-term operations
sooner than planned. Moreover, it is particularly difficult to estimate with
certainty our future revenue and expenses given the dynamic and rapidly evolving
nature of our business and the COVID-19 pandemic environment generally. For
example, in March and April 2022, the FDA amended the EUA fact sheet to exclude
sotrovimab use in geographic regions where infection is likely to have been
caused by a non-susceptible SARS-CoV-2 variant based on available information,
including variant susceptibility to these drugs and regional variant frequency.
With these EUA revisions, sotrovimab is not currently authorized for use in any
U.S. region. In light of these developments, we cannot predict whether (if at
all) or to what extent sotrovimab may be reauthorized for use by the FDA in any
U.S. region in the future. In addition, due to the evolving COVID-19 landscape
and based on discussions with the FDA, we and GSK do not plan to file a BLA for
sotrovimab at this time. It is possible that the FDA and other regulatory
authorities may not grant sotrovimab full marketing approval for the treatment
of COVID-19, or that any such marketing approvals, if granted, may have similar
or other significant limitations on its use.

We may 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 expect to finance our cash needs through
public or private equity or debt financings, third-party (including government)
funding and marketing and distribution arrangements, as well as other
collaborations, strategic alliances and licensing arrangements, or any
combination of these approaches. 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

                                       44
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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. Market
volatility, inflation, interest rate fluctuations and concerns related to the
COVID-19 pandemic and geopolitical events, including civil or political unrest
(such as the ongoing war between Ukraine and Russia), may have a significant
impact on the availability of funding sources and the terms on which any funding
may be available.

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. See the section titled "Risk Factors-Risks Related to Our
Financial Position and Capital Needs" for a description of certain risks that
will affect our future capital requirements.

We have various operating lease arrangements for office and laboratory spaces
located in California, Oregon, Missouri and Switzerland with contractual lease
periods expiring between 2022 and 2033. As of September 30, 2022, we expect to
make total lease payments of $179.6 million through 2033.

To date, we have entered into collaboration, license and acquisition agreements
where the payment obligations are contingent upon future events such as our
achievement of specified development, regulatory and commercial milestones, and
we are required to make royalty payments in connection with the sale of products
developed under those agreements. For additional information regarding these
agreements, including our payment obligations thereunder, see Note
4-Acquisitions and Note 6-Collaboration and License Agreements to our unaudited
condensed consolidated financial statements included in this Quarterly Report on
Form 10-Q. For information related to our future commitments under our
facilities and manufacturing agreements, see Note 8-Commitments and
Contingencies to our unaudited condensed consolidated financial statements
included in this Quarterly Report on Form 10-Q.

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements.

Cash flow

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

                                                               Nine Months Ended September 30,
                                                                  2022                   2021
                                                                       (in thousands)
Net cash provided by (used in):
Operating activities                                       $        1,628,127       $      (55,284 )
Investing activities                                               (1,040,326 )            236,768
Financing activities                                                   32,750               94,661

Net increase in cash and cash equivalents and

  cash and cash equivalents                                $          620,551       $      276,145




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Operational activities

During the nine months ended September 30, 2022, net cash provided by operating
activities was $1.6 billion. This consisted primarily of net income of $617.4
million, non-cash charges of $475.1 million, and an increase in our net
operating assets of $535.5 million. The change in our net operating assets of
$535.5 million was primarily due to a decrease in collaboration receivable by
$491.9 million resulting from our profit-share from the sale of sotrovimab and
an increase in accrued liabilities and other long-term liabilities by $65.1
million due to timing of payments, partially offset by a $24.5 million decrease
in deferred revenue primarily driven by GSK's First Option Exercise and Brii
Bio's exercise for VIR-3434 netted with the grants received from Bill & Melinda
Gates Foundation. The non-cash charges of $475.1 million primarily consisted of
$353.5 million for change in estimated constraint on profit-sharing amount, an
unrealized loss of $120.0 million on our equity investment, $77.2 million for
stock-based compensation expense, $7.9 million for revaluation of contingent
consideration, $6.5 million for noncash lease expense and $4.4 million for
depreciation and amortization expense, partially offset by $93.8 million for
payment for contingent consideration in excess of acquisition date fair value.

During the nine months ended September 30, 2021, net cash used in operating
activities was $55.3 million. This consisted primarily of net income of $3.3
million and non-cash charges of $131.0 million, offset by payment of contingent
consideration of $8.1 million for a milestone achieved related to our TomegaVax
acquisition, an unrealized gain of $164.1 million on our equity investment, and
an increase in our net operating assets of $17.4 million. The change in our net
operating assets of $17.4 million was primarily due to an increase in
collaboration receivable by $93.0 million resulting from our profit share from
the sale of sotrovimab, and a decrease in accrued liabilities and other
long-term liabilities by $13.5 million due to timing of payments, partially
offset by increases in deferred revenue by $89.6 million driven by the upfront
fee received under the 2021 GSK Agreement, and prepaid expenses and other
current assets by $1.9 million. The non-cash charges of $131.0 million primarily
consisted of $63.2 million for revaluation of contingent consideration, $59.4
million for stock-based compensation expense, $4.5 million for noncash lease
expense, and $3.9 million for depreciation and amortization.

Investing activities

In the nine months ended September 30, 2022the net cash used in investing activities was $1.0 billion. These were primarily investment purchases of $1.1 billion and the goods and equipment of $55.4 millionpartially offset by $84.8 million proceeds received from maturing investments during the period.

During the nine months ended September 30, 2021, net cash provided by investing
activities was $236.8 million. This consisted primarily of $301.2 million in
proceeds received from investments that matured during the period, partially
offset by purchases of investments of $55.7 million and property and equipment
of $8.8 million.

Financing Activities

During the nine months ended September 30, 2022, net cash provided by financing
activities was $32.8 million. This consisted primarily of proceeds from the
issuance of our common stock to the Bill & Melinda Gates Foundation of $28.5
million under the stock purchase agreement, from exercises of stock options of
$3.6 million, and from issuance of common stock under our employee stock
purchase plan of $2.1 million, partially offset by $1.2 million for payment of
contingent consideration.

During the three and nine months ended September 30, 2021, net cash provided by
financing activities was $94.7 million. This consisted primarily of proceeds
received from the issuance of our common stock to Glaxo Group Limited (an
affiliate of GSK) of $85.2 million in March 2021 and from exercises of stock
options of $9.6 million.

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Significant 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.

There have been no significant changes in our critical accounting policies during the nine months ended September 30, 2022compared to those previously disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2021filed with the SECOND on February 28, 2022.

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