Vir Biotechnology, Inc. (VIR) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Andrew Galler, one of the biotech analyst here at Morgan Stanley and I'm pleased to be joined by Phil Pang from Vir Biotechnology. Phil is the CMO and Interim Head of Research currently. And before we get jump in, I'm going to read some disclosure statements. For important disclosures, please see the Morgan Stanley research disclosures website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

So I guess we can start very broadly right now. Vir now has a healthy balance sheet given the Djibouti windfall. So maybe we can discuss capital allocation priorities broadly.

Thank you, Andrew. So I think that the key here is not just the Djibouti windfall, which is $2.6 billion, but really how we're going to use that money to accelerate growth at Vir. And so our capital allocation is focused on our Phase 2 programs, which include a Phase 2 that will read out next year in flu, a Phase 2 that will read out next year in hepatitis delta and multiple studies that will read out in hepatitis B all within 2023 and then, of course, capital allocation goes to refreshing the pipeline. But I would also say, it also goes to really making sure that we have the best science we can, so we continue to think of world as our laboratory and keeping our eye on what's in the space.

Absolutely. So as a follow-on to that, if you think about business development priorities, small molecules are foundational in virology. So it is an area that VR is considering for business development to boast your portfolio?

Definitely. In fact, I would say that small molecules are critical in virology and we have known that for some time. So in 2019, we began a small molecule program at Vir. We continue that program, but even more importantly, since it takes time to build a small molecule platform, we signed a collaboration with GSK in 2021. And in speaking with Tony Woods, the new Head of GSK, Research and Development, he is all in, in our small molecule platform, which is differentiated by its ability to not just target 1 virus, but multiple viruses. So definitely, small molecules is an important aspect of Vir's future.

Yes, absolutely. And I think one thing that people don't really understand about the Vir portfolio is the differentiated nature of your antibody platform, you have a number of different Fc modifications, I think a lot of people would tend to write off Fc modification is just a pharmacokinetic function. Maybe you can talk more about some of the functionality you gained through your Fc platform?

So, very good point. So as everyone knows, the Fc domain, the constant domain of an antibody through the FcRn receptor is important for half-life, but the rest of it, the gamma receptors are important for engaging in the immune system. And of course, no one in oncology would say that the Fc part doesn't matter, that's exactly how killing of a tumor cell by an antibody in oncology happens. So what we did was we took that the next step further. We wanted to engage not just natural killer cells or macrophages, but to engage dendritic cells. Through the Fc gamma 2a receptor, you can engage dendritic cells, cause them to mature and create antigen-specific T cells, CD8 T cells. That mutation is not just in our next-generation flu antibody, our COVID antibody, but also in our HBV 3434 antibody, which allows it to act as a therapeutic -- as a potential therapeutic vaccine. And that, of course, is critical because when it comes to curing HBV, you need an immune response in order to kill off the infected hepatocytes.

Yes, absolutely. And then maybe we can move to COVID just briefly. So you have 7832, a follow-on to sotrovimab that has some of these Fc modifications, but it has the same epitope as sotrovimab. So how do you think that -- how do you balance these 2 characteristics of sotrovimab and how it will affect its profile and neutralization ability?

Yes, so definitely, I think that if it doesn't bind i.e., if the FAB doesn't bind, it doesn't matter. But I think in this case, what we've shown with sotrovimab is about a 15-fold diminution in neutralization activity. So it still binds quite well. And the Fc domain at this point with 7832 is really designed as a proof of biology play to be able to contrast it and demonstrate in humans what we've seen in animals. And in animals, of course, we see this incredible CD8 T cell response, which is -- increases respiratory antibodies by fivefold in their potency and an oncology model allows for a therapeutic vaccination. So I think it's a proof of biology play right now, which has a lot of potential. But of course, we need to see whether or not that plays out in humans.

So proven biology is great, but then should we think about COVID as a continued avenue of investment for the company?

I would say definitely yes, but I want to balance that against the fact that we are and never have been just a COVID company. So I would say the 4 pillars of the company are HBV, HDV, flu and COVID. We intend to continue to invest in COVID because we believe there will continue to be an unmet need, especially in prophylaxis. But I would say that right now, we're focused on our Phase 2 readouts next year, which is flu, HDV and HBV and we will continue to invest in next-generation COVID antibodies.

Yes, absolutely. So we can move away from COVID now and touch on another one of the pillars you mentioned to hepatitis B. So first of all, I guess you can -- even along with the rest of the HBV players have a broad portfolio with numerous shots on goal. Can you discuss broadly which are the programs you're most excited about and where you think you're the most differentiated?

Yes. So in my mind, Vir is most differentiated not just because of a broadness of its program, but the type of program. So you've mentioned other players which are often focused on what I believe is antiviral cocktails and we're focused on combinations of antivirals with immunomodulators. So in terms of the immunomodulators cocktails I'm most excited about, it's actually what I mentioned before, which is VIR-3434 because of its ability to act as a therapeutic vaccine and stimulate CD8-specific T cells. So that compound, along with 2218 with and without interferon is being tested for 24 and 48 weeks in our March Part B trial, which began enrolling in June and will start to read out next year. So that's the most exciting, but of course, we have other exciting cocktails such as with breath therapeutic vaccine, as well as with Gilead and TLR8 and PD-1, all of which are immune-based in addition to antiviral.

You serve in interferon compound as well?

Yes and we also have an interferon combination that has shown very interesting data where when you give it at the same time, it has a very different response than if you give the interferon after you first given the 2218. So there's something there about the immunology that we are still learning to tease apart, but it's also a very interesting thing and we expect to have more data at AASLD later this year.

Absolutely. So to cure off, you're targeting the functional care, which is a reduction of serum HBsAg. And so I guess that we think about the currently available therapeutics in hepatitis B, the standard of care, it's nukes and then interferon. How do -- what kind of functional care can these attain?

So the current functional cure rates depends on the patient population, what's generally accepted by EASL or AASLD is between a 3% to 7% functional cure rate with interferon. Now of course, there are populations where you might be able to get higher or lower, but on average that's what the community accepts. As far as nukes, it really depends again on the patient population. Some people have quoted as high as 1% per year, but the latest data coming out of people such as Mindy Nguyen at Stanford, suggest it may be as low as 0.3% per year. So I think the goal of functional cure is to go from chronic suppressive therapy as we have in for example HIV to finite therapy, which would result in being able to stop all drugs and be able to have a lifetime free of drugs and that's really the goal of functional cure. And I think most experts agree that anything north of 25% would be a home run, given the fact that 3% to 7% is the accepted norm.

Yes. So that 3% to 7% rate you quote for interferon, I want to understand is that in a compliant population given so many patient to go up interferon therapy due to safety issues?

I think it's really hard to say because the clinical trials are, frankly, not that many, right? There's only a few clinical trials. For example, Gilead did a clinical trial where they did a NUC plus interferon and they got up to like 9% or 10% in genotype A patients, but it was a smaller number. They got closer to 3% to 5% in other population. So I think that's about the right number. In terms of compliance, it actually tends to be higher in clinical trials than outside of clinical trials. So I would expect that number to go down, not up in practice.

Yep, absolutely. Let's talk about your first assay, your short interferon RNA asset partnered with Alnylam, VR-2218. So if I look at across the different siRNA from yours to Roche to J&J, it seems like it's most differentiated by exclusively targeting the HBx gene, where J&J has a mix and the Roche assay targets just the HBS gene. So I know that the -- I guess the rationale for this is you knock down all HBV transcripts. But I want to understand maybe the importance of one of these transcripts, HBX transcript and HBX AG.

Yes, maybe before we dive into that question, maybe I'll put a little frame around it, which is that I think that since siRNAs as monotherapy have demonstrated that they are not able to achieve a functional cure, I think what differentiates Vir, as well as any company from one another is what you pair the siRNA with and in our case, I've talked about VIR-3434. In regard to the specific question about targeting X or not, I think that the prevailing wisdom has always been to try and target as many transcripts as possible. Dicerna came out with a hypothesis that if you didn't target X, you would get greater surface antigen knockdown. Unfortunately, their own clinical trial in my mind just prove that hypothesis. So I think we're back to -- nobody knows, but clearly the hypothesis of not targeting X hasn't played out. But again, I think the bigger context is combination therapy and that's why we're very excited about our collaborations with Brie, Gilead as well as, of course, our own VIR-3434.

Yes, absolutely. I think in some literature at least suggest that HBX might be one of the oncogenic drivers of hepatocellular carcinoma in these patients, doing that implies a role for HPX as a tolerogen?

I don't know about as a tolerogen, but I do agree that there is literature suggesting HBX may be oncogenic. I think the challenge with HBX is it doesn't have a very good structure, I shouldn't say it doesn't have a very good structure. It's largely an unfolded protein and it interacts with everything. So as you go through the literature, it looks like it interacts with everything and therefore does so many different things. I would say that the tolerogen or the ability of HBV to shut off the immune system is something that is clearly documented and not well understood. I would say the leading hypothesis is that intracellular quantities of surface antigen and other antigens are acting to dampen down the immune system. This is a phenomena that was discovered 30 years ago called high-zone tolerance where basically the liver, if it gets a whopping antigen load basically does not respond to it as opposed to getting a small antigen load. So I think that, that's the leading hypothesis. Now the question is, if you knock down that antigen, does it reverse tolerance and that is what we don't know yet.

Absolutely. And then I think your most advanced combination would be your 3434, as you said in monoclonal antibody. I think when you talk about this when you talk about having a dual mechanism of action, could you maybe expand on that?

Definitely. VIR-3434 is a neutralizing antibody. So therefore, it targets a part of hepatitis B that is essential for entry into the cell. So it's a neutralizing antibody just like any neutralizing antibody functions that prevents viral entry. The second part is the Fc part, which is what we've talked about earlier, which is being able to engage the immune system. Now a typical antibody, if it's positioned correctly can already engage NK cells and that would mediate what's called ADCC or macrophages, which is ADCP. What we're doing is, it does have that mechanism of action, which is enhanced, but what's more important to us is the ability to engage dendritic cells. And if it is able to engage dendritic cells, then it should be able to stimulate as a maturation factor, it should be able to stimulate antigen-specific CD8 cells, which would then go in and kill the infected hepatocytes. Now that is the question we need to answer, which is in some sense the analogy I like to use is 3434 steps on the gas and stimulates the immune system. The real question is, have we knocked down antigen enough to remove the tolerogen or remove the stop sign on immune system. So that's our dual mechanism of action in terms of both looking at it from an antibody perspective, as well as from a cocktail perspective.

Yes, so do you have any concern at all about turning the immune system against hepatocytes and activate anything like that? Or are you at least concerned about potential liver enzyme elevations?

So I would definitely say that in any immune therapy, you need to be careful. But I would also say that this is something we've had -- when I started at Vir 6 years ago, I opened a channel to [ unlock ] the past President of ASLD and I asked her exactly this question. And I think that the answer to your question is, I am not concerned as long as the patient is on antivirals and here's why. If you take a patient who is having fulminant hepatitis B and you give them a NUC, you can actually reverse that feminine hepatitis and take them off the transplant list. So what's really happening is that the infected cells get killed by the immune system, new cells get replicated, they get infected, they then get killed and so on and so forth the resulting lymphoma hepatitis. However, if you're having killing infected cells without the infection of new cells, generally speaking, you don't have those types of ALT elevations into the thousands. And actually, if you look at the recent GSK data, they had elevations into the hundreds and we're able to achieve some significant on treatment effect. So I think that certainly it's something we need to be mindful of, it's why all our patients are on a NUC, the siRNA is also an antiviral and 3434 is also an antiviral. So, so far, we're in a great place, but it's definitely something to be mindful of.

Yes and I noted the advanced combination, the impressive HBsAg serum reduction with VIR-3434. I just guess I want to know what gives you confidence that their sign of disease modification rather than just a cosmetic reduction since you're buying the serum HBsAg.

Yes, so I think that the confidence goes back to the fact that we are looking at immune-mediated cocktails. So with an immune-mediated cocktail, you have to have some ability to modulate the immune system and so our confidence really comes from the in vivo data showing that an antibody with what we call the XX2 Fc modification is able to stimulate CD8-specific T cells. Now whether or not that happens in humans, that's the question. But I also know that there's an extraordinary body of literature suggesting that as I mentioned before, if you can knock down large amounts of surface antigen and intracellular other types of hepatitis B antigen, you may be able to result in a reversal of tolerance. So you have to believe both. You have to believe that you can reverse tolerance and you're going to be able to stimulate novel CD8 T cells, all of which have proven out in the in vivo space, but whether or not that's going to prove out in humans, that's exactly the point of the trial and there's no doubt, HBV is a tough nut to crack.

Okay. And I think we've talked -- we talk a lot about functional care and you talk about the HBsAg reduction. Let's talk about how that affects the clinical outcomes for the patient and their risk of developing HCC or liver failure. Is it similar to someone who had an acute HBV infection? Or is it just less on someone that maintains a chronic HBV infection?

So the #1 concern with hepatitis B is 2 clinical outcomes. One is cirrhosis or liver failure, cirrhosis leading to liver failure and/or liver cancer. You don't have to have one to get the other, but generally speaking cirrhosis accelerates cancer, but you can also have cancer in the absence of cirrhosis. So that happens in about, let's say, 20% of patients. So I think that only in the chronic state do you have to worry about those things. And then there's good epidemiologic evidence showing that if you achieve a functional cure defined as loss of HBS antigen your rate of HCC goes down dramatically. And so I think that those -- that is why, for example, regulators worldwide have already issued guidance is saying that if you achieve surface antigen loss off treatment 6 months later, you can be considered both cured and it has a clinically meaningful outcome because of that epidemiology evidence linking loss of surface antigen to a decrease in HCC.

Yes. And then maybe let's think for a second to allow patient, a lot of investors will like in HBV to HCV and I think that's a false equivalency given HCV treatment, we're sterilizing cures. But is it the cccDNA that remains in the nucleus that makes it so difficult to develop a sterilizing cure for HBV?

That's definitely part of the problem. So if you think about HCV, it's an RNA virus that listen to cytoplasm. And as you pointed out, cccDNA lives in the nucleus, but the way in which cccDNA exists in nucleus, it almost acts like a mini chromosome and it actually uses the same -- not the same, but many of the protein host factors that we use to maintain our own chromosomes. So as a result, trying to find a way to target cccDNA that doesn't end up targeting your own genome is a tricky challenge. So that's why the only way we know how to prevent or treat cccDNA is to kill the entire hepatocyte. That is a limitation and that's why sterilizing cure has proved so elusive.

Yes, absolutely. So let's move to your universal flu antibody now if we can. So the preclinical data has shown broad neutralization activity against H3N2 and H1N1 strains that have cropped up over the last decade. Has preclinical testing shown similar efficacy against other strains with other hemagglutinins?

That's actually a really good point to make, which is that there are 16 different hemagglutinin types, H1 and H3, of course, are the ones that we most commonly hear about, but of course H5 comes up with bird flu and H7 came up in China and H9 also rerated every now and then. So the unique thing about VIR-2482 is that it binds or neutralizes all 16 of the hemagglutinins that have been found in influenza A. And that's important because, of course, you want to not just prevent current existing strains, but you want to prevent theoretically future strains that evolve and since most of those strains come from animals being able to prevent all of those animal viruses is also key. Now I say binds or neutralizes only because in full disclosure, you can't create some of these viruses, right? There'd be a biohazard, right? So as much as you can test, we've tested and we feel very confident that it not only binds or neutralizes, but it does so potently allowing us to use a single potentially intramuscular injection to be able to last up to 6 months. I would also add that as far as H1N1 and H3N2 is concerned, we've actually shown coverage over the last 100 years of flu evolution every major strain of influenza since the 1918 pandemic.

Absolutely. And so you do this by targeting the stem of the hemoglobin in rather than the head?

That's correct.

And I guess, as I think about the design choices that went into this flu antibody, is there any specific reason you didn't go with neuraminidase? Is it because neuraminidase mainly cleaves the connection with a cell where HA facilitate cell entry.

So I would say that there's 2 reasons and part of it is -- it's less mechanistic and more pragmatic in the sense that right now, there -- it's in about, let's say, 2008, 2010, they started to come out with these universal hemagglutinin/stem binding antibodies, but they were actually mostly group 1 specific. 2482 was really one of the first Group 1 and Group II specific. When it comes to neuraminidase, it's actually only very recently and only in the literature where they've been able to find antibodies that are more broad. So the concern with the neuraminidase is it would be less broad and I think in the setting of wanting prophylaxis you want is broad a coverage as possible. That having been said, Vir is very interested in neuraminidase antibodies. And if we can find one that covers all the hemagglutinins, all the neuraminidase, we'll definitely be interested in it.

So is there less structural similarity between the different neuraminidases?

I think it's probably also a question of accessibility right? So I think there was a recent paper coming out of WashU showing a neuraminidase that actually mimics some of the neuraminidase inhibitors and therefore binds within the catalytic site, which is a very fascinating phenomena. But the question becomes, does that antibody suffer from the same type of mutational resistance profile that, for example Tamiflu line. So these are all things that we're definitely looking into and we have a robust next-generation flu program, which again is partnered with GSK, which they are and we are very excited about.

Absolutely. You mentioned that it's going to be dosed intramuscularly. Can you tell me about how bioavailability in the upper and lower respiratory track compares to maybe a subcu and IV formulation?

So maybe I'll take that in 2 parts. So in terms of IV versus subcu and/or IM, generally, the accepted literature says about 50% to 70% of a subcu or IM antibody is available in the bloodstream, I'll get to the lung in a second. So that's compared to, obviously, IV. There are some differences between subcu and IM, but those differences are probably small compared to the differences between 2 different antibody. So largely 50% to 70%. When it comes to where it goes in the body after it goes to the bloodstream, there is, of course, the parenchyma within the lung and then there's the upper airway, which is the less vascularized sort of trachea and nasal areas. So generally speaking, depending on who you talk to, most of the parenchyma, which is vascularized, people assume anywhere between 25% to 50% goes to the lung. And then the upper nasal passages, it depends on whether or not you're talking about the mucus or the tissue, but somewhere between 3% to 7% is also sort of in that range.

Absolutely. And then I guess, where are the next -- actually, I'll step back a second. What have you shown preclinically around disease transfer between animals?

Yes, so it's interesting. Most of the -- we're talking flu. In flu, most of the studies are, of course, legal challenge experiments with mice and that is both good and bad in the sense that it's an easy endpoint, but it's a lethal endpoint and you're giving them a whopping challenge of the virus. The only way to test for transmission in animals that's really robust is to actually use ferrets and you actually put cages of ferrets next to one another and you see does it go from one cage to the other. And that experiment has actually been done with 2482 and we were able to show prevention of transmission from 1 set of ferrets to the other set of ferrets. But those are, as you can imagine, very complicated and difficult experiments, so we're not doing that with 15 different strains or something like that. But we have established proof of concept that this works.

And then I think you mentioned the next steps for this program will be a Phase 2 in the Northern Hemisphere flu season. Are we going to focus on older adults in that?

Yes, so the design of the Phase 2 study is a 3-arm study that has 2 doses, 1 low dose, 1 high dose and a placebo arm. It's 3,000 patients. So it's designed for a clinical endpoint, which will read out next summer. So that's extremely exciting for us. And our goal is to enroll all 3,000 of those patients in this coming fall season. In terms of the design of patient population, what we wanted to do for the Phase 2 is getting what we call an absolute effect size, learn compared to placebo, just how different it is. So for example, everyone quotes 40% for an efficacy of a vaccine, that's relative to placebo, in the elderly, they often quote 20%. So we wanted to know where we are on that scale and our goal is to hit somewhere around between 70% to 80%. To do a placebo-controlled trial in the setting of a standard of care vaccine, you need to use more healthy patients, otherwise, the regulators wouldn't let you do it. So the Phase 2 will be against placebo in 18 to 64 year olds, who do not have comorbid conditions, but the Phase 3 will be a superiority study to vaccine in the target population, 65 and above with comorbid conditions, of which there are between 15 million to 20 million just in the United States alone.

And that 70% to 80%, is that prevention of severe disease and hospitalization or is it just PCR identified infections?

So it is actually going to be somewhere in between. So to power a study for hospitalization, you probably need like 40,000 people just because the incidence of hospitalization is so low in the grand scheme. I mean there are 500,000 people hospitalized per year in the United States, but there's also 350 million people. So a little bit of a different story. So the primary endpoint is PCR confirmed infection plus symptoms because otherwise, I think that it's not going to be meaningful to the patients, if they're just PCR-positive and they never realized they had the disease. So it's a PCR-positive with symptoms.

Absolutely. And so then as I think more broadly about your antibody platform and virology, are there any specific areas of interest you've identified so far?

Yes, so I think that it's been an interesting ride to really -- we bought our antibody platform through the acquisition of Humabs which is a company in Bellinzona, Switzerland and we like to say it's the company that never stops giving. They were also the only company to develop a single antibody to cure Ebola. They found obviously a highly conserved epitope with sotrovimab for COVID. They found a highly conserved epitope for flu. So we think that this is a simply a center of excellence that will continue to serve the company. We're pairing that with, of course, excellence in antibody engineering, in terms of the Fc engineering we talked about. For example, we have a program underway using AI plus mutagenesis to actually predict can we come up with even better Fc mutations that we can program to say, hit Fc gamma-2a, but not 2b, but just a little bit of 3A, that sort of thing. But I also think there's a flip side. We've been talking about antibodies, which I sort of think of as the foot and the epitope, which is the footprint, you can turn that around and say, well, if you can find conserved epitopes, using these universal antibodies, you can also potentially create universal antigens. And I think that everyone has been going through this whole issue with either flu or COVID and the fact that the antigen keeps shifting. Well, if you're able to come up with a university conserved antigen, that would be game changing, that's another reason we're so excited about Humabs both for its antibody generation capacity, but also for its ability to identify universal antigen.

Yes, absolutely. So we talk a lot about universal antigens. What about some less mutagenic viruses like maybe RSV that is still a seasonal virus as being chased after by a lot of vaccine players. Is that something that will be of interest to you?

Definitely. In fact, not from a vaccine perspective because, of course, that's, I think, a well-trodden field. But as you know, in pediatrics, RSV is a major cause of morbidity and sometimes mortality and those pediatric patients often don't generate an immune response. And that was demonstrated 20 years ago by MedImmune with Synagis, which was a palivizumab. They also have a next-generation antibody. So our thought was how can we really make a difference in the medical need. And so we're looking for antibodies that not only cover RSV, but related viruses such as metapneumovirus. And we've actually found again talking about our antibody engine in Bellinzona, we fund an antibody that neutralizes the same antibody with the same epitope that neutralizes 4 paramyxoviruses, including RSV and human metapneumovirus. So then that to me is a very differentiated thing and it's again something we're very excited about and hope to bring into the clinics.

Yep. And then your last platform, the CMV vector platform. It's definitely interesting, it has ongoing program in HIV, which probably isn't as important to the company, just given economics are diluted through your partnership with the Gates Foundation. But could you share some other potential avenues you think this would be a good fit for?

Maybe I'll answer that in 2 ways, I realize I only have 35 seconds. I would say the Gates Foundation is only add-on in the sense that they have rights to -- in certain low middle income countries. And so I don't think that, that's a concern to us in terms of eventual, in fact, I would say it's a bonus to us because we'll be able to get it to some of the countries where it's most needed. But I will agree with you that it is a long-term play. HIV prevention is going to be half a decade to a decade away. So if we're able to use CMV as a transformative vaccine vector, just like mRNA transform the space for regular vaccines, we would be able to program a new immune response, great tolerance and I think the most rapid application would be in cancer therapeutics.

Great. Well, we're out of time. Phil, thanks so much for joining us today and thanks to the rest of the year team for coming.

All right.