Vir Biotechnology - Q2 2024

Transcript

Operator (participant)

Hello, welcome to Vir Biotechnology's second quarter 2024 financial results and business update call. As a reminder, this conference call is being recorded. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad to raise your hand. I would now like to turn the call over to Richard Lepke, Senior Director of Investor Relations. You may begin, Mr. Lepke.

Rich Lepke (Senior Director of Investor Relations)

Thank you, operator, and hello, everyone. I am Richard Lepke, Senior Director of Investor Relations at Vir Biotechnology. Joining me on the call are Dr. Marianne De Backer, our Chief Executive Officer, Dr. Jennifer Towne, our Chief Scientific Officer, Dr. Mark Eisner, our Chief Medical Officer, and Brent Sabatini, our Chief Accounting Officer. Before we begin, I'd like to remind everyone that some of the statements we are making today are forward-looking statements under applicable securities laws. These forward-looking statements involve substantial risks and uncertainties that could cause our clinical development programs, future results, performance, or achievements to differ significantly Froms those expressed or implied by such forward-looking statements. These risks and uncertainties and risks associated with our business are described in today's press releases and the company's reports filed with the Securities and Exchange Commission, including Forms 10-K, 10-Q, and 8-K.

With that, I'll turn the call over to Marianne. Please go ahead.

Marianne De Backer (CEO)

Good afternoon, everyone, and thank you for joining us today. At Vir, our mission is powering the immune system to transform lives. During today's earnings call, we will discuss two significant announcements that mark critical milestones on our journey to realize this mission. Before we dive into these announcements, let me quickly highlight some key achievements from the second quarter. We presented promising Phase II SOLSTICE data in chronic hepatitis delta at the EASL Congress, which generated significant interest from both the scientific as well as the medical community. These preliminary data underscore the potential of our combination therapy tobevibart and elebsiran to revolutionize the treatment landscape for people living with hepatitis delta. We are now preparing to engage with regulatory authorities to discuss the registrational path forward. We also recently received FDA IND clearance and Fast Track designation for this combination therapy.

In parallel, we remain focused on advancing our functional cure program for chronic hepatitis B, and we eagerly anticipate reporting 48-week end of treatment data from the Phase II MARCH Part B study at the major medical congress in the fourth quarter. Now, let me turn to the 2 significant announcements that will be the main focus of today's call. First, I'm excited to announce that Vir has entered into an exclusive worldwide license agreement with Sanofi for 3 clinical-stage masked T-cell engagers and the exclusive use of the Pro-XTEN protease-cleavable masking platform for oncology and infectious diseases. This license agreement is subject to HSR review and clearance, which we expect will take about 30 days from signing. Second, we will be providing a corporate update on our strategic restructuring.

To provide you with a comprehensive overview of these announcements and their impact on our company, we have structured today's call as follows. First, I will summarize the strategic rationale behind the Sanofi license agreement and the corporate restructuring. Then, Jen will provide details on the masking platform and its potential applications. Mark will discuss the clinical stage assets we have licensed. Brent will provide a financial overview, including the terms of the agreement and our capital allocation priorities in light of the restructuring. Finally, I will offer some closing remarks before we open the call for questions. Let me now provide more details on our exclusive worldwide license agreement with Sanofi and the strategic measures we have announced today. First, the agreement adds three potentially best-in-class clinical-stage assets.

SAR446309 or AMX-818, a dual-masked HER2-targeted T-cell engager in phase I development. SAR446329 or AMX-500, a dual-masked PSMA-targeted T-cell engager in phase I clinical development. SAR446368 or AMX-525, a dual-masked EGFR-targeted T-cell engager with a cleared IND, scheduled to begin phase I in early 2025. For the duration of the call, we will refer to these assets by the last four digits of their drug candidate code, 6309, 6329, and 6368, respectively. Looking ahead, these assets have multiple near-term key catalysts expected in the next 9 to 18 months. Second, we obtained the exclusive license to Sanofi's Pro-XTEN protease-cleavable masking platform for oncology and infectious diseases.

T-cell engagers are, in essence, engineered bispecific monoclonal antibodies, and given our deep antibody protein engineering and T-cell biology expertise, we believe that we can unlock meaningful synergies and create new best-in-class therapies.... Upon closing, we are also excited to strengthen Vir's capabilities by welcoming a team of key Sanofi employees with extensive scientific and oncology development expertise. Finally, we are strategically reprioritizing our pipeline, which has led to a restructuring of our organization. To better understand the potential impact of the licensed assets, let's first discuss the current landscape of cancer therapeutics and the unmet needs that still exist. Despite advances in cancer research, the global burden of cancer remains high, with 10 million deaths annually and a five-year survival rate of just 5% for some cancers.

T-cell engagers have shown promise as a potent therapeutic modality, but they often have low tolerability because of off-tumor, on-target toxicity in healthy tissue, systemic toxicity, such as cytokine release syndrome, and the inability to achieve therapeutically active doses in the tumor microenvironment. These limitations have hindered the widespread adoption of T-cell engagers to date. Our solution to addressing these challenges is the potential best-in-class Pro-XTEN protease-activating masking technology. This proprietary platform allows T-cell engagers, cytokines, and other molecules to be selectively activated in the tumor microenvironment. By masking the T-cell engagers, this technology aims to minimize off-tumor toxicities and systemic side effects while enabling the achievement of therapeutically active doses directly in the tumor tissue. This technology has the potential to significantly improve the safety and efficacy profile of future treatments.

Now, this strategic transaction not only enhances our clinical pipeline, but also augments our core R&D capabilities, and upon closing, will bring a complementary platform to the company. At Vir, we have always prided ourselves on our world-class immunology and virology expertise, which has enabled us to uniquely discover and engineer monoclonal antibodies to address serious infectious diseases. With the anticipated addition of the Pro-XTEN masking platform, we will be even better positioned to develop innovative therapies that selectively target disease-causing cells while sparing healthy tissue. Our leading data science capabilities, including machine learning and AI, will further support our efforts to bring transformative therapies to patients faster. An important component of the agreement is that we are adding a team of key employees who offer extensive expertise in oncology clinical development, in-depth knowledge of the proprietary masking platform, and valuable expertise in manufacturing dual-masked molecules.

By combining our existing strengths with this new expertise, we will create a powerful synergy to drive innovation, and we look forward to working together to advance our mission following closing of the transaction. As we anticipate integrating the licensed assets into our pipeline, we are taking decisive steps to focus on the highest value near-term opportunities. First, we are focusing our resources on our core programs in hepatitis delta, hepatitis B, and upon closing, the newly licensed masked T-cell engager clinical portfolio. Second, we are phasing out programs in influenza and COVID-19, as well as our T-cell-based viral vector platform and programs. Where appropriate, these programs will be made available for partnering. Third, we are implementing a workforce restructuring that will result in a reduction of approximately 25% of our employees.

These actions are expected to yield significant cost savings while allowing us to effectively utilize our strong balance sheet to advance our strategic priorities. By streamlining our operations and allocating our capital efficiently, we are positioning Vir for long-term success and sustainable growth. In addition, we are revising our 2024 expense guidance lower. Brent will summarize the details later on the call. I do want to take a moment to express my deepest gratitude to all our employees, including those who will be leaving the company, for their dedication and their significant contributions to our mission. These decisions, while difficult, are necessary to ensure that we are allocating our capital and our talents in the most effective way possible to bring transformative therapies to patients. We believe that this strategic restructuring will enable us to deliver on that promise more effectively than ever before.

With that, I would now like to turn the call over to Jen, who will provide more details on the masking platform and its potential applications in oncology and in infectious diseases.

Jennifer Towne (Chief Scientific Officer)

Thank you, Marianne, and hello, everyone. As you can see on the slide, the Pro-XTEN technology consists of a protease-releasable XTEN mask that can be universally applied to various protein therapeutic modalities. The Pro-XTEN technology has two key features. First, it employs a universal mask, which in the case of a T-cell engager, is applied to both arms, masking both the parts of the molecule that targets the tumor-associated antigen and the part that activates the T cell, the CD3 arm. Second, the technology utilizes a protease cleavable linker, which enables preferential unmasking and drug activation specifically in the tumor microenvironment. This is possible because the tumor microenvironment is known to have high levels of specific proteases that can cleave the linker, releasing the active drug from the XTEN mask. The Pro-XTEN technology can be applied to T-cell engagers, cytokines, and likely other modalities.

This masking technology allows for the selective activation of potent immune modulators at the site of the tumor while minimizing their activity in healthy tissues. The XTEN mask has been clinically proven with ALTUVIO, an approved drug, to provide half-life extension to the masked molecule. Now, let's take a closer look at how this technology can overcome the historical limitations of T-cell engagers and unlock new opportunities in cancer treatment. In blood circulation, the molecule remains fully masked with all of its components, including the XTEN mask, the linker, and the tumor targeting and T-cell engaging components, all intact and connected. This mask configuration allows for a long half-life in the blood, which is essential for effective drug delivery to the tumor site. As the masked T-cell engager reaches healthy tissue, the dual masking of both the tumor-associated antigen and the CD3 arms limit binding to healthy cells and T-cells.

This unique feature reduces T-cell-mediated cytotoxicity, thereby improving the tolerability of the treatment. However, when the masked T-cell engager enters the tumor microenvironment, a critical transformation occurs. The tumor microenvironment is characterized by high levels of tumor-associated proteases. These proteases recognize and cleave the protease cleavable linkers on the Pro-XTEN masked T-cell engager, and therefore unmask and activate the molecule specifically in the tumor tissue. The selective unmasking and activation in the tumor microenvironment allows for higher concentration of active drug where it's needed most, while minimizing exposure and toxicity in the healthy tissues. Once unmasked, the active T-cell engager can engage T-cells and tumor cells, promoting potent antitumor activity, resulting in killing of the tumor cells. Importantly, any unmasked molecules that exit the tumor microenvironment are rapidly eliminated from the body due to a short half-life once unmasked, further reducing the risk of off-tumor toxicity.

We believe that this approach has the potential to revolutionize the field of T-cell engagers and other immunotherapies. Now, I'd like to share some compelling preclinical proof-of-concept data to demonstrate the ability of the Pro-XTEN masked HER2 T-cell engager to be conditionally activated in the tumor microenvironment. Let's start with the graph on the left, which shows the in vitro T-cell dependent killing of HER2-positive tumor cells in the presence of Pro-XTEN masked and unmasked T-cell engagers. As you can see, the masked HER2 T-cell engager leads to a 10,000-fold shift in cytotoxicity compared to the unmasked HER2 T-cell engager in vitro. In other words, the masked T-cell engager is essentially hidden in the absence of the proteases found in the tumor microenvironment, which is exactly what we want to minimize off-target toxicity.

Looking to the middle graph, we see the in vivo antitumor efficacy in a HER2-positive tumor model following treatment with masked or unmasked HER2 T-cell engagers. The masked HER2 T-cell engager induces robust tumor regression, demonstrating equivalent efficacy to the unmasked molecule. This provides strong evidence that the unmasking process is occurring as intended in the tumor tissue. Finally, the graph on the right shows the relative levels of masked and unmasked T-cell engager present in tumors versus healthy tissues 48 hours after treatment with the masked HER2 T-cell engager. As predicted, the only site where we see an accumulation of unmasked active T-cell engagers is in the tumor. In contrast, the masked inactive molecule is present across many tissue types. This preferential unmasking in the disease site with minimal to no exposure of active molecule in normal tissue, is critical to reduce off-tumor toxicity.

Now, let's explore how this technology can also maximize the therapeutic index. Starting with the graph on the left, we see that the masked HER2 T-cell engager demonstrates extended pharmacokinetics as compared to the unmasked molecule. The prolonged circulation time of the masked molecule allows the drug to reach the tumor tissue, while the rapid clearance of any unmasked molecule in the periphery helps to minimize off-target toxicity. Moving to the middle graph, we observe minimal cytokine release with the masked T-cell engager, as indicated by the low levels of IL-6. Cytokine release syndrome has been a major limitation for the current T-cell engagers, and this evidence is highly encouraging for the platform. Finally, the box on the right showcases the improvement in therapeutic index achieved.

In non-human primate studies, the maximum tolerated dose of the masked HER2 T-cell engager was 43 milligrams per kilogram, compared to just 0.2 milligrams per kilogram for the unmasked HER2 molecule. This represents a greater than 100-fold improvement in therapeutic index. Notably, the unmasked HER2 T-cell engager was lethal due to cytokine release syndrome at a dose of 0.3 milligrams per kilogram, highlighting the significant safety challenges associated with conventional T-cell engagers. As we anticipate integrating the Pro-XTEN masking platform and the talented team from Sanofi and Vir, I'd like to highlight the synergistic capabilities and expertise that this deal brings together. First, at Vir, we have a deep understanding of T cell biology and how to optimize their activity to kill cells in infectious diseases. This expertise can be directly applied to maximizing the ability of the masked T cell engagers to eliminate tumor cells.

Second, our monoclonal antibody platform enables the rapid generation of novel antibodies for identified tumor targets. By combining our antibody discovery capabilities with the Pro-XTEN masking technology, we can rapidly create a new generation of masked T-cell engagers that can address a broad range of tumor antigens, expanding the potential impact of this modality. Third, our next-generation protein engineering capabilities, which leverage proprietary AI and machine learning tools and high-throughput wet lab selection, enable us to optimize the properties of any protein. This expertise allows us to fine-tune and enhance multiple protein characteristics simultaneously. We can potentially create masked molecules with optimized stability, pharmacokinetics, and tumor-specific activation, further improving their therapeutic potential. Now, let's discuss how the unique combination of properties offered by this proprietary platform sets it apart from other masking technologies.

First, the Pro-XTEN platform employs a dual masking approach, where both the tumor-associated antigen and CD3 binding domains are masked. This feature maximizes the therapeutic index by decreasing both the off-tumor activity and the systemic immune activation. Second, the platform is designed to provide a short half-life of the active drug while maintaining a long half-life of the masked drug. This allows the masked drug to reach the site of action before being removed, enhancing its therapeutic potential. Once activated, the short half-life of the active drug provides a safety advantage by limiting systemic exposure. Third, the platform features universal tunable masks that can be applied to any T-cell engager. This innovative plug-and-play format allows us to use the same mask across multiple therapeutic candidates, saving time and resources compared to developing new masks for each antibody and expediting the development process.

Fourth, the platform has broad applicability, as it can be used to mask not only T-cell engagers, but also cytokines and other therapeutic modalities. This versatility expands the potential impact of the technology and allows us to explore a wide range of immune-targeting approaches. Finally, the masking technology has been validated in human clinical studies, providing a strong foundation for its use in our pipeline. We believe that with the unique properties of the platform and our combined expertise, we are uniquely positioned to develop a next generation of masked T-cell engagers and cytokines. This powerful combination will set Vir apart and strengthen our position as a leader in the development of transformative immunotherapies. With that, I'd like to hand the presentation over to Mark.

Mark Eisner (CMO)

Thank you, Jen, and hello, everyone. I'll now provide an overview of these programs and our plans for clinical development. Following closing, the licensing agreement would provide us with a robust portfolio of assets targeting clinically validated antigens in oncology. These assets include three dual-masked T-cell engagers, each targeting a different antigen: HER2, PSMA, and EGFR. SAR446309 is a dual-masked HER2 CD3 T-cell engager. This asset has the potential to address significant unmet needs in HER2-expressing cancers, with initial indications including third line or later HER2-positive metastatic colorectal cancer and second to third line HER2-positive metastatic breast cancer. SAR446329 is a dual-masked PSMA CD3 T-cell engager. This asset is initially being developed for the treatment of third line or later metastatic castration-resistant prostate cancer, a disease with limited treatment options and poor outcomes.

SAR446368 is a dual-masked EGFR CD3 T-cell engager. This asset has the potential to address multiple EGFR-expressing tumors with initial indications including third line or later metastatic colorectal cancer, second to third line metastatic non-small cell lung cancer, and second to third line metastatic head and neck carcinoma. While we refer to specific lines of therapy and initial indications for these assets, it's important to note that our goal is ultimately to move up to earlier lines over time as the data support. HER2, PSMA, and EGFR are all known to be important targets in a variety of solid tumors, and existing therapies against these targets have demonstrated clinical benefit. However, existing therapies often come with significant toxicities, which can limit their ability to be dosed high enough to achieve optimal efficacy.

In the following slides, I will provide more details on each of these assets, including their current clinical development plans. Now, let's dive deeper into 6309, the dual-masked HER2-CD3 T-cell engager. As you can see on the left side of this slide, there's a significant disease burden associated with HER2-positive cancers, particularly in metastatic colorectal cancer, breast cancer, and gastroesophageal junction cancer. We estimate that annually, there are tens of thousands of newly diagnosed patients with metastatic HER2-positive cancers in key regions.... Despite the availability of HER2-targeting agents, there remains a significant unmet need in the treatment of HER2-positive tumors. While these therapies have improved outcomes for patients, mortality rates remain high due to disease progression. Additionally, there are major safety concerns associated with current HER2-targeted therapies, particularly cardiac dysfunction, interstitial lung disease, and pneumonitis.

In the HER2-low setting, which represents the majority of breast cancers, the treatment options are even more limited. There's only one approved HER2-targeted therapy for this population in HER2, highlighting the need for additional effective and well-tolerated treatment options. The current Phase 1 study design for SAR446309 is carefully crafted to optimize the dose, demonstrating proof of concept with a dual-masking platform, and evaluate its potential across multiple HER2-expressing solid tumors. The study began with a single-agent dose escalation phase to optimize the dose of SAR446309. Patients are enrolling at increasing dose levels until an optimized dose is determined. The study also includes a combination dose escalation phase with pembrolizumab. In addition, there are potential expansion cohorts to evaluate the efficacy and safety of SAR446309 in specific tumor types, such as HER2-positive metastatic colorectal cancer, HER2-positive breast cancer, and HER2-low breast cancer.

The data from these expansion cohorts will inform further development in these indications. We are excited about the potential of 6309 to transform the treatment landscape for patients with HER2-expressing cancers. As the only masked HER2 T-cell engager currently in clinical development, 6309 is designed to offer lower off-tumor and systemic toxicity, allowing for higher doses and potentially improved efficacy and benefit-risk profile compared to existing HER2-targeted therapies. The Phase 1 study is currently being conducted at 10 active sites in Europe and Australia. Monotherapy and combination therapy data is anticipated to be available in the second half of 2025, which will be a key catalyst for the program. Now, let's shift our focus to 6329, a dual-masked PSMA-directed T-cell engager. Metastatic castration-resistant prostate cancer represents a significant disease burden, with a large number of patients across lines of therapy.

Despite currently available treatments, approximately 50% of patients with non-metastatic castration-resistant prostate cancer experience metastatic recurrence within 3 years. Furthermore, only 34% of patients with metastatic prostate cancer are alive 5 years after diagnosis, highlighting the need for more effective therapies. We believe that SAR446329 is a highly differentiated asset. By leveraging the Pro-XTEN masking technology, SAR446329 targets PSMA, a highly expressed antigen on prostate cancer cells, to drive T-cell-mediated intra-tumor responses in the TME. As the only dual-masked PSMA-directed T-cell engager currently in clinical development, SAR446329 is designed to offer lower off-tumor toxicity, allowing for higher doses and potentially improved efficacy compared to existing PSMA-targeted therapies.

Consequently, we believe that 6329 can offer patient benefit in third-line metastatic castration-resistant prostate cancer, with the potential to move into earlier lines of therapy in combination with anti-androgen therapies, which are the standard of care for these patients. The phase one study is ongoing, evaluating 6329 as monotherapy in a dose-escalation design, with the potential to advance into monotherapy and combination therapy expansion cohorts. A key advantage of the Pro-XTEN technology is universal masking. This allows the use of the safety experience, especially about the risk of cytokine release syndrome from the 6309 phase one study. This knowledge enabled 6329 to start at higher dose and potentially dose titrate faster, accelerating the development timeline. The phase one study is currently being conducted at six active sites in Europe and Australia. Monotherapy data is expected to be available in the second half of 2025.

This data readout will be a key catalyst for the program. Now, let's turn our attention to 6368, a dual-masked EGFR CD3 T-cell engager with IND clearance. EGFR-expressing solid tumors represent a significant disease burden, with a large number of newly metastatic patients diagnosed each year. EGFR is broadly expressed across a wide range of tumor types, making it an attractive target for cancer therapy. While the graph on the left highlights some of the most prevalent EGFR-expressing cancers, it's important to note that EGFR is also expressed in many other tumor types. Despite available treatments, the unmet need for patients with EGFR-expressing tumors remains high. The five-year survival rates for metastatic patients range from a mere 3% to 38%. In second- and third-line settings for these tumor types, the outcomes are dismal.

Leveraging the Pro-XTEN masking technology, we believe that 6368 has the potential to provide a safe and tolerable treatment option for patients in the second-line and beyond settings for these difficult-to-treat cancers. The preclinical data for 6368 provides similar validation as seen with the previous Pro-XTEN masked T-cell engagers, demonstrating the platform's ability to minimize off-target toxicity while maintaining potent antitumor activity in the TME. In vitro, the masking of 6368 leads to a 10,000-fold shift in cytotoxicity compared to the unmasked EGFR T-cell engager, highlighting the ability of the Pro-XTEN technology to prevent off-target immune synapse formation. In vivo, the Pro-XTEN masked EGFR T-cell engager demonstrates similar antitumor activity to the unmasked EGFR T-cell engager, effectively inhibiting tumor growth compared to the control.

The selective activation in the TME is consistent with the preclinical data shown for the other Pro-XTEN masked T-cell engagers. These preclinical findings support the clinical development of SAR446368, and with IND clearance, this asset is well positioned to rapidly advance into a phase I clinical study in patients with metastatic head and neck squamous cell carcinoma, non-small cell lung cancer, and colorectal cancer. The phase I clinical study for SAR446368 is targeted to begin in the first quarter of 2025. Importantly, EGFR expression in healthy tissues poses a significant challenge that potential therapeutics must minimize off-tumor toxicity to be clinically viable. The dual masking technology employed in SAR446368 can potentially offer a critical advantage over conventional EGFR-targeted approaches.

The rapid clearance of SAR446368, achieved through a shortened half-life outside the tumor microenvironment, enhances its safety profile and suggests that it could be a transformative treatment option for these patients. To conclude, the Pro-XTEN masking platform and the clinical assets licensed from Sanofi will, following closing, represent a significant step forward in our mission to develop innovative therapies that address the unmet needs of people living with cancer. With that, I would like to hand the presentation over to Brent.

Brent Sabatini (Chief Accounting Officer)

Thank you, Mark. I would now like to discuss the financial aspects of this transaction and how it aligns with our strategic priorities. Following closing, our license agreement with Sanofi will provide us with exclusive rights to three clinical-stage dual-masked T-cell engagers. In addition to these clinical-stage assets, the agreement will also provide us with exclusive use of Sanofi's protease cleavable masking platform for oncology and infectious diseases. After HSR clearance, which we expect will take about 30 days from deal signing, we will be responsible for and have sole decision-making authority over all development and commercialization activities related to these assets. In exchange for these rights, Sanofi will be eligible for future development, regulatory, and commercial net sales-based milestone payments, as well as tiered royalties on worldwide net sales. These payments are structured to allow Sanofi to benefit from Vir's successful advancement and commercialization of these assets.

As part of the agreement, at closing, we will make an upfront payment of $100 million, as well as a near-term escrow milestone payment of $75 million, which is subject to 63-68 achieving first-in-human dosing, totaling $175 million in near-term payments. As we anticipate integrating the newly licensed assets into our pipeline, we're also taking steps to prioritize our R&D portfolio and restructure our workforce to ensure that we are allocating our resources to the opportunities with the highest potential for patient impact. By concentrating our efforts on our key programs, we believe we can maximize value creation. As part of this prioritization, we have made the decision to stop our R&D programs in influenza, COVID-19, and the T-cell-based viral vector platform. Where appropriate, we will seek strategic partners to continue the development of these assets.

We are also implementing a workforce restructuring that will result in a reduction of approximately 25% or approximately 140 employees. This reduction excludes the onboarding post-closing of approximately 50 key employees from Sanofi. We expect to end 2024 with around 435 employees, a reduction of close to 200 employees versus our peak in 2023. We estimate this workforce restructuring will result in a reduction of our cost structure by approximately $50 million annually, with savings expected to begin to be fully realized in the first quarter of 2025. In addition, we anticipate cost savings of approximately $50 million through the end of 2025 from the phase-out programs. These cost reductions will allow us to allocate more resources to our core programs while maintaining strong financial position.

Combined with the strategic restructuring efforts announced in late 2023, we have successfully streamlined our operations and reduced our annual cost structure by an estimated $90 million in total from our peak. Positioning Vir for enhanced financial resilience, we remain committed to identifying additional cost-saving measures as we move forward. I'll now briefly touch on some key financial highlights for the second quarter of 2024. R&D expenses for the second quarter of 2024 were $105.1 million, compared to $168.1 million for the same period in 2023. The decrease was primarily driven by lower clinical development costs and manufacturing costs associated with VIR-2482, lower manufacturing costs associated with our hepatitis programs, and lower personnel costs related to cost savings initiatives implemented in 2023.

SG&A expenses for the second quarter of 2024 were $30.3 million, compared to $45.5 million for the same period in 2023. The decrease was primarily related to cost savings initiatives implemented during the second half of 2023. Restructuring, long-lived asset impairment, and related charges for the second quarter of 2024 were $26.3 million, compared to $5.4 million for the same period in 2023. The increase was primarily related to impairment charges related to closing our St. Louis, Missouri facility, previously announced on December thirteenth, 2023. We ended the second quarter of 2024 with cash, cash equivalents, and investments of $1.43 billion, compared to $1.51 billion at the end of the first quarter of 2024, representing a $78 million decline quarter over quarter.

I'll now summarize our revised financial guidance for 2024, which takes into account the anticipated impact of the licensing agreement and the workforce restructuring. We now expect our 2024 full year GAAP operating expenses to be in the range of $580 million-$610 million. Our revised expense guidance reflects a $70 million reduction compared to our prior guidance and demonstrates our commitment to financial discipline. When excluding non-cash stock-based compensation and restructuring expenses from the GAAP operating expense range, the resulting range is $450 million-$500 million, which represents a 26% year-over-year decline at the midpoint. From a cash perspective, our cash utilization in the second half of 2024 is expected to be similar to the first half of 2024.

The expense and cash guidance include the anticipated operating expenses associated with the license agreement. However, they exclude the impact of the previously mentioned $100 million upfront payment due to Sanofi at closing and the $75 million escrow payment. We will incorporate any associated impact on our guidance during our third quarter 2024 earnings press release. As we move forward, we remain confident in our ability to execute on our strategic priorities and create long-term value for our shareholders. With that, I will now turn the call back over to Marianne for closing remarks.

Marianne De Backer (CEO)

Thank you, Brent. As we have shared previously, our goal is to become a sustainable, fully integrated commercial company, and we have committed to utilize our strong cash position to invest in complementary attractive clinical stage assets. We have committed to leverage our scientific expertise, our proprietary antibody platform, and our capabilities to broaden our aperture beyond infectious diseases. We have committed to increase our financial discipline and build a more fit-for-purpose organization, and we have committed to sharpen our investment focus on areas where we can make the greatest impact on patients and value creation. Planning to close the license agreement with Sanofi, and coupled with our strategic restructuring, we will have successfully delivered on all of these commitments. Looking ahead, we will be positioned well with a focused set of development priorities to accelerate near-term value creation.

Our development priorities include promising programs in Hepatitis Delta, Hepatitis B, and the newly licensed T-cell engagers. We are looking forward to sharing more with you on these programs, as well as our earlier stage programs during our R&D Day in late November. As we look to the future, we are excited about the multiple value-driving catalysts anticipated across our pipeline in the next 4-18 months. We expect to report additional clinical data from our Hepatitis Delta and our Hepatitis B programs later this year, as well as share updates subject to closing on the progress of our newly licensed T-cell engagers during the course of 2025 and 2026. These milestones highlight the potential of our pipeline to deliver meaningful near-term value.

In conclusion, today marks a pivotal moment for Vir as we embark on a new chapter in our journey of powering the immune system to transform lives. With a strengthened pipeline, our talented team, and a clear vision for the future, we are well positioned to deliver on our mission and create long-term value for all our stakeholders. Thank you for your continued support and your interest in Vir. We look forward to keeping you updated on our progress. And with that, I'll turn the call back to Rich to begin the Q&A session.

Rich Lepke (Senior Director of Investor Relations)

Thank you, Marianne. We will now start the Q&A session. Please limit questions to two per person so we get to all of our covering analysts. I'll turn it over to you, operator.

Operator (participant)

Thank you, Rich. At this time, we will begin conducting our analyst Q&A session. For our analysts, please raise your hand to indicate you would like to join the queue, if you have not done so already. To raise your hand, you must press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Once you hear your name, you can unmute your line and ask your question. Our first question comes from Phil Nadeau with TD Cowen. Please go ahead.

Brent Sabatini (Chief Accounting Officer)

Good afternoon. Thanks for taking our questions, and congratulations on the deal. Two for us on the new molecules. I guess, first, on 6309 and 6329, the dose escalation phases that are ongoing now, from which we'll get data next year, are those in,

Phil Nadeau (Analyst)

... unselected patient populations, kind of all comer refractory patients, or are they being, are HER and PSMA specific, patients being enrolled in those trials? That's the first question. And then second, more broadly, can you give us some idea of the framework by which you'll evaluate all three of the TCEs to continue investment and, and move forward? They sound very, very interesting. Nonetheless, there are other agents obviously already on the market or in development targeting PSMA, HER, and EGFR. So, what, broadly, what do you hope to see? Do you want to see best in class, simply competitive enough, or do you expect there to be populations in which these work that some of the other agents don't? Thank you.

Marianne De Backer (CEO)

Thank you, Phil. Appreciate the question. Maybe I'll ask Mark, our CMO, to address your first question.

Mark Eisner (CMO)

Sure, and I appreciate the question. I think it's a really good one. For both 6309 and 6329, we are, as you said, enrolling tumor types that are, you know, heavily pretreated. In the case of 6309, both HER2 positive and HER2 high and HER2 low patients are being enrolled. For the PSMA program, you know, there's not a specific requirement for PSMA positivity, but that certainly will be something that's looked at. In terms of your question about the framework for how the assets will be evaluated, you know, the phase 1 studies allow both dose escalation to test the hypothesis that we can achieve a superior therapeutic index with better safety and efficacy than unmasked TCEs can achieve. So that's one point.

The second point is that it allows for potential, like, expansion cohorts into different diseases, both in monotherapy and in combination therapy. So, you know, as the data evolve, we'll be able to determine, you know, what are the most promising tumor types, combinations versus monotherapy. You know, in terms of very specific hurdles or bars, you know, I think that's something we'll have to, you know, get back to you on a subsequent call. But, you know, what I would end with saying is that the way the program is currently designed will allow, you know, a very intensive interrogation of monotherapy, combination therapy in a variety of tumor types, and in the case of PSMA and prostate cancer.

Marianne De Backer (CEO)

Yeah.

Phil Nadeau (Analyst)

That's very helpful.

Marianne De Backer (CEO)

Yeah. Yeah, the only thing I would add there, Phil, is, as we discussed, I mean, the unmet medical need is still incredibly high, in each of these areas for two cancers and obviously PSMA, cancers, and there's no, TCEs approved in, either of the areas, that we are discussing today.

Phil Nadeau (Analyst)

That's very helpful. Congrats again on the deal, and thanks for taking our questions.

Marianne De Backer (CEO)

Thank you.

Operator (participant)

Our next question comes from Roanna Ruiz with Leerink. Please go ahead.

Nick Abbott Abbott (Analyst)

Hey, good afternoon. This is Nick Abbott on for Roanna. Thanks for taking our questions. Maybe first from us on the new deal with Sanofi, I guess, which of the three T-cell engager programs are you most excited about? And curious, you know, what your thoughts are on the competitive positioning across the three, and I have a follow-up on HDV.

Marianne De Backer (CEO)

Yeah, thank you for that question. I'll start and then also ask Mark to chime in. Just, yeah, again, to reiterate, for HER2, PSMA, and EGFR, even though those are obviously biologically well-validated targets and there's a lot of activity that has been going on on these targets, I think that if you look at the landscape today, again, there's still a very high unmet medical need, high mortality for people diagnosed with HER2 cancers. Again, we talked about, you know, only 34% of patients being alive after five years, you know, diagnosed with PSMA prostate cancer, and then only a five-year survival rate of, you know, really being very low, between 3%-38% for EGFR related cancers.

So the unmet need, despite everything that might be approved or in development, is incredibly high. There are no T-cell engagers for any of these targets that are currently being approved. And again, despite other modalities being approved, especially for, you know, HER2, PSMA, you are still faced with this high mortality and a lot of, you know, challenging side effects for patients. So the unmet need remains, and we think there's really for each of these therapeutic agents an opportunity to potentially really drive a differentiating impact for patients. Mark, do you want to add?

Mark Eisner (CMO)

Sure. Thanks, Marianne. So what I would add is that these are all clinically validated targets, so we're very excited about all three of them. They are at different phases of development. The HER2 program is farthest along in the clinic, and, you know, so we're getting efficacy, preliminary efficacy and safety data in these patients and with multiple tumor types. I think there's an opportunity to be first to achieve clinical proof of concept with a masked TCE. For PSMA, we're in phase one as well. Janux offers a powerful proof point for the approach, which is another asset also in phase one. And the other thing I would add is that, because of the universal masking, we're able to leverage the 6309 HER2 program to dose escalate more quickly in the PSMA program.

Then EGFR, which as we've said before, is looking to go to phase 1 early next year in Q1, is a potential high-risk, high-reward opportunity. There's multiple competitors in the clinic, 3, but there's multiple tumor types that are EGFR positive. And I think here, the potential of the masking is really impactful because this is such a widely expressed marker or molecule that, you know, in order to achieve a therapeutic index that can actually treat the cancers without with acceptable safety, you know, this is where I think the exciting aspect of the EGFR program is.

Jennifer Towne (Chief Scientific Officer)

Got it. Thanks for that color. Maybe second question, just on HDV. Curious how your interactions with the FDA have been going after the recent HDV data at EASL, and maybe curious what your latest outlook is on a potential accelerated approval pathway here. Thanks.

Mark Eisner (CMO)

Yeah, so great question. So we already announced that we have a Fast Track designation from the FDA, which I think speaks to the high medical need and the very compelling clinical data. We are pursuing other accelerated clinical development pathways, such as Breakthrough Therapy designation, and we are pursuing an engagement with FDA starting this quarter, Q3, to talk about the registrational program. So, you know, we're very excited about the Delta program. We're moving quickly to get into registrational studies.

Jennifer Towne (Chief Scientific Officer)

Very helpful. Thanks.

Operator (participant)

Thank you. Our next question comes from Paul Choi with Goldman Sachs. Please go ahead.

Paul Choi (Analyst)

Hi. Thank you. Good afternoon, and let me also offer my congratulations on the deal. My first question, either for Jennifer or for Mark, is, can you maybe share any additional insights with regard to the safety profile of your T-cell engagers that you just in-licensed from Sanofi, particularly with regard to anything in healthy volunteers that would suggest, you know, that you can avoid some of the issues with cytokine release syndrome that have been a hallmark of the class, and just any other evidence you can share on, with regard to the safety profile?

And then my second question, more for Mark probably, is, as you think about prosecuting next stage clinical trials after the dose escalation studies, can you comment on your ability and the company's ability to pursue multiple drugs here, I guess, in the clinic at the same time, or will you prioritize one over the other, depending on the dose escalation data?

Operator (participant)

Go ahead, Mark.

Mark Eisner (CMO)

Sure. Thanks, Paul, for the questions. In terms of the safety data, I mean, the first thing I would mention is the preclinical data that Jen described in detail that shows the fact that there's a 10,000-fold reduction in potency in the masked state, as opposed to in the tumor microenvironment, where the molecules are activated and form immune synapses with the tumor cells. We have had the opportunity during the diligence to look at preliminary clinical data, including safety data. It's been very valuable to be able to see that. We're not able to comment on that today, but I can say that, you know, we gained some valuable insights that gave us confidence to move into prosecuting the deal.

In terms of the next stage clinical trials, great, great questions about that. You know, in terms of our development capabilities, you know, I think Vir has demonstrated that we can run large trials at scale, including the Peninsula trial of influenza prevention, 3,000 or so patients, multiple phase one and two studies simultaneously in Delta. And, you know, we- in bringing on the, the, Sanofi employees, you know, I think we, we see a lot of synergies between what we can provide in terms of clinical operations, regulatory and other infrastructure, and their knowledge and in-depth experience with these assets and their, you know, deep, relationships with the KOLs and the sites. You know, I, I feel confident that we'll be able to prosecute multiple, trials simultaneously. That said, of course, we'll, we'll follow the data.

You know, we'll prioritize programs that have the most compelling clinical data as those data evolve.

Paul Choi (Analyst)

Okay, great. Thank you for taking our questions.

Operator (participant)

Our next question comes from Eric Joseph with J.P. Morgan. Please go ahead.

Eric Joseph (Analyst)

Hi, thanks for taking the question. Maybe just one or two on 6309. As the trial is designed, it contemplates a combination with anti-PD-1 pembrolizumab. Maybe you can shed some light on the biological rationale behind that combination. Are any PD-1s thought to be potentiators of T-cell engagers and any visibility that you might have at this stage on the safety of that combination so far?

Jennifer Towne (Chief Scientific Officer)

Hi, this is Jen. I can start with that. So maybe I'll start and then hand it over to Mark along the ideas of the safety. So, you know, I think fundamentally, what a T-cell engager requires is both the targeting the tumor with the tumor-associated antigen and an activation of the T cells through the CD3 arm. This then forms the immune synapse and allows the T cells to directly kill the tumor cells. This requires that you have T cells there that can be activated, and so that's where I think you have real synergy with something like a PD-1, which really removes a brake on a T cell and allows them to be active. So that's really the fundamental concept behind use of a checkpoint inhibitor with a T-cell engager.

Joseph Stringer (Analyst)

... Yeah, in terms of the safety of dose escalation in combination with pembro, you know, I'll just refer to my prior statement, which is, you know, we have had the opportunity to see preliminary clinical data, including safety data and preliminary efficacy data, and, you know, we found this information really valuable. We're not, you know, really able to comment in detail on that at this point, but this is information we'll be providing at a subsequent interaction.

Eric Joseph (Analyst)

Okay, great. Well, thanks for the color, and congrats on the deal.

Marianne De Backer (CEO)

Thanks, Eric.

Operator (participant)

Our next question comes from Michael Ulz with Morgan Stanley. Please go ahead.

Michael Ulz (Analyst)

Yep. Hey, guys. Thanks for taking the question. Maybe just now that you have this Pro-XTEN masking platform, you mentioned the potential to leverage it with your own monoclonal antibody platform. Can you maybe just give us a sense, you know, where you initially think you might go with your next generation antibodies that could be masked now or any particular targets you might be interested in? Thanks.

Marianne De Backer (CEO)

Jen, you want to take that?

Jennifer Towne (Chief Scientific Officer)

Yeah. No, thank you for the question. So, you know, so I, I do think there are real synergies. I mean, fundamentally, what the T-cell engagers are, is they are built off of the antibodies. And so, these use single-chain FVs, which are the binding portion of the antibody. So our antibody discovery engine really does provide quite complementary and synergistic power to developing the next stage of T-cell engagers. I think, as you can see by the first three molecules, they really have focused in on ones that for which there is biological proof of concept for these being bona fide tumor-associated antigens. And, you know, frankly, there's, there's a number of others that, that one could consider developing. I think that's where we'll start. I do think the platform has really broad broad potential and broad applicability.

The first time an XTEN was used was this molecule, ALTUVIO, which was really just used to extend its half-life. I think from that, it's been shown that it can be applied to not only, T-cell engagers, but also, also to other, biologics, including, cytokines and probably antibodies as well. So I think there really is a, a broad potential of this, but I think focusing in first on those that have, you know, a biological proof of concept, and then expanding from there.

Michael Ulz (Analyst)

Got it. Thank you.

Marianne De Backer (CEO)

Yeah, Mike, the only thing I would add is if you think about, you know, these masked T-cell engagers and the components of it, as Jen was saying, I mean, on the T-cell engager side itself, the therapeutic modality, I think we can contribute tremendously with our antibody engineering expertise. And then what is also, I think, very encouraging is that both on the mask side, as Jen said, there's a considerable amount de-risking that has happened, given that there's a drug on the market that has been using this mask. And also on the cleavable linker side, I think you have seen what Jen presented on the preclinical data, which is very convincingly showing, of course, preclinically, in vitro and in vivo, that this actually works.

So I think there's a lot of de-risking that has happened on, on the platform. And as it relates to then really going for new targets, I think we can add a really unique capability.

Michael Ulz (Analyst)

Thanks.

Operator (participant)

Our next question comes from Joseph Stringer with Needham & Company. Please go ahead.

Joseph Stringer (Analyst)

Hi, thanks for taking our questions. You mentioned the broad potential of the platform and the in-license assets. Just curious if you could provide some additional color behind the decision for the in-licensing, and was the move into oncology intentional? Were there other assets in other therapeutic areas that were considered? And then lastly, does the corporate update here affect any of the timelines or any of the resources that you can devote to the HBV or HCV programs? Thank you.

Marianne De Backer (CEO)

Yes, thank you for that question, Joey. So, you know, the corporate update, absolutely, no impact on our timelines for the hepatitis delta and hepatitis B studies. I mean, our focus will be on clinical execution. That is really a strategic priority for our hepatitis programs, and then after closing of this transaction, also the newly licensed T-cell engagers. Now, coming to your earlier question about how we came about the decision. So, you know, during the course of, I think the last year, we have said that we wanted to be really strategic and thoughtful about how we would be using our, you know, cash balance, which, as Brent mentioned, was $1.43 billion at the end of the second quarter.

That we would be looking for potentially bringing in a clinical-stage asset or assets, and really look for opportunities that would build strongly on our existing expertise, so really opportunities where there would be strong synergy. So obviously, we have looked at a lot of opportunities that would fit that mold. But I would say that, you know, we really believe this is a very, very unique fit for a lot of different reasons. Obviously, to start, the opportunity addresses a very high unmet need. We talked about it, and we did very rigorous due diligence, and we came away very convinced about the value of, you know, the clinical assets, but also really the value of the platform and the science behind it. As we said, the targets, the biological targets on the three clinical assets are de-risked....

The masking is, you know, to some extent, de-risked. And the cleavable linkers, again, we have very strong preclinical data in vitro and in vivo to show that this actually all. So, and again, in addition, highly synergistic, as we discussed, you know, with every capability that we have here in-house, our antibody expertise, our clinical development organization, that has proven to be very, very strong in operating on clinical trials, and also our deep immunology expertise and B- and T-cell expertise, which we haven't talked about that much. And then finally, this deal brings a number of near-term catalysts and value inflection points for the company. You know, within the next 9-18 months, you know, we will really be able to see data on these clinical-stage T-cell engagers.

So that's all taken together, you know, very, very excited, and a great moment for us here at Vir.

Operator (participant)

Our next call, our final call for today, comes from Alec Stranahan with Bank of America. Please go ahead.

Alec Stranahan (Analyst)

Thanks, and appreciate you taking more questions. Two from us. First, just on the new TCE assets, just trying to understand the competitive positioning a bit more. Anything unique that you could point us to in terms of the design of the mask versus, say, a Janux or, or a CytomX? Or is it more due to the fact that you're using a mask on both the anti-tumor and the anti-CD3 arms versus the actual structure of the mask itself? And then I've got a follow-up.

Operator (participant)

Jen, you want to take that?

Jennifer Towne (Chief Scientific Officer)

Yes, sure. Happy to. So, you know, really, I think that the uniqueness is actually in the combination of attributes for this platform. And so I spoke about this, but it was at a fairly high level, so let me elaborate a little bit more. So I think there's some major components, one you hit upon, one is the dual masking. So I think there provides a real advantage to masking both the tumor-associated antigen as well as the CD3 arm, and that both arms can be cause of safety issues, and so masking both of them really has the best potential to eliminate those issues.

Importantly, this is also a different design in that it's a universal mask, so that's where it comes with this, like, plug-and-play concept, in that the same mask can be used across multiple different therapeutics. So essentially, the same mask is on all three of the T cell engagers that are in or close to the clinic, and this allows for rapid execution, both preclinically, but also rapid execution in the clinic. As Mark highlighted, this does make a quicker path towards dose escalation for PSMA because the mask itself has been de-risked. And Altuvio itself does also de-risk the mask. I mean, so there has been an approved product for which this mask is used, providing additional concept around its safety, as well as lack of immunogenicity.

And then, finally, I think the other component that we've hit on, but I think is also quite exciting, is this broader applicability of the mask, not only for T cell engagers, but also potentially for other molecules, like cytokines or potentially other protein therapeutics like antibodies.

Alec Stranahan (Analyst)

Okay.

Marianne De Backer (CEO)

Yes, and Alex, I would just add that, you know, from a competitive landscape perspective, for HER2, you know, there's no other masked T cell engagers in development. For PSMA, there's one masked TCE in development, and for EGFR, there are three. So I mean, in the broader context of things here, where, you know, TCEs, as we discussed, have a lot of shortcomings and a lot of, you know, toxicity and really challenging profiles for patients, we have an opportunity here through these masked TCEs to really drive a difference, and the competitive landscape is really not that intense.

Alec Stranahan (Analyst)

Okay, thanks. That's clear. And then maybe one quick one, just putting a finer point on the applications in immunology. Would this mostly be through half-life extension for, say, cytokines? Or are there any targets or indications you think could be most apt initial avenues for development? Thanks.

Jennifer Towne (Chief Scientific Officer)

Yeah. So, you know, it can extend the half-life, but I think actually, there are two attributes. So the way that the mask is used in ALTUVIO is purely to extend the half-life. The way the mask is used for the T cell engagers is that it does extend the half-life and allows them to get to the site of action. However, once they are cleaved, they then have a very short half-life, which then allows them to act in that tumor microenvironment because they're right there with their target antigen. It activates the T cells, which then have a longer-lived, activation profile. But that active molecule, once it circulates, then has a very short half-life, and that provides an added safety benefit.

You can envision the same type of thing being applied to a cytokine, having it be activated only at the site where you want it to be activated, and then having that short half-life be an attribute. Because we all know that these cytokines, while incredibly potent and beneficial for activating immune cells, they often have very high associated toxicity itself. So while they have a short half-life, you don't want them to have too long of a half-life, or you're going to have greater toxicity. So I think both are true. Thank you for the question.

Alec Stranahan (Analyst)

Thank you.

Operator (participant)

All right, this concludes the Q&A session of the call. Thank you for participating, and I'll turn the call back over to Marianne.