The bull case for Vir starts to unravel

Vir Biotechnology’s bullish claims for its Covid-19 antibody VIR-7831 helped to push the company’s market cap above $10bn and attract Glaxosmithkline as a partner and investor. The bull thesis took a big knock yesterday with news that the NIH had dropped the project from a large basket trial assessing novel pandemic treatment approaches.

The Activ-3 trial recruited patients already hospitalised for Covid-19, a setting in which antibodies from Lilly and Regeneron have failed to show a benefit, and in which Vir believed VIR-7831 had a better chance. Concerns about “the magnitude of potential benefit” appear to rule out that particular opportunity, but the 28% plunge in Vir’s shares yesterday, and a further 10% drop this morning, suggest that the concerns go deeper.

Vir believes that VIR-7831 has advantages over other Covid-19 MAbs largely because of the way the company engineers its antibodies. Vir says it screens hundreds of millions of B cells to identify the most potent antibody against a particular target, then engineers both parts of the MAb (the Fab and Fc domains) to enhance efficacy, potency and manufacturability.

VIR-7831 is based on an antibody isolated from a patient who recovered from Sars in 2003. The company believes that this particular antibody might bestow immunity against the entire family of related coronaviruses, and thus could maintain effectiveness against the new variants of the Covid-19 virus.

Preclinical work was enough to convince Glaxosmithkline, which struck a broad coronavirus deal last April with Vir, buying $250m-worth of shares for $37.75 apiece.

Fast forward 11 months and Vir stock is still worth that amount – just about – although the days of $60 a share are surely now firmly in the past. Even at today’s diminished $4.5bn market cap many believe the company to be overvalued, considering the early stage of its remaining pipeline.

The failure of VIR-7831 to get past the exploratory stage of Activ-3 will come as a big blow to those who believed that the company was on to something different with this project. Considering that neither Lilly nor Regeneron had any luck in this setting, others will be less surprised. But the finding raises the risks around the next big readout, from Comet-Ice, due in the coming weeks.

Comet-Ice is seeking to show a reduction in the severity of infection in pre-hospitalised patients, and VIR-7831 has a high bar to beat. Lilly’s combination of bamlanivimab and etesevimab generated a 70% reduction in the risk of hospitalisation or death in Blaze-1; hopes are also high for Regeneron’s MAb combo, casirivimab and imdevimab, on which full data are also due.

As a monotherapy VIR-7831 is arguably at a disadvantage here. Perhaps the recent deal with Lilly that led to the entry of ‘7831 into the Blaze-4 trial was an acknowledgement that two MAbs were bound to be better than one.

Others believe that Vir’s approach is even more fundamentally flawed. Major concerns include what looks to be lower biochemical potency compared with the Lilly and Regeneron MAbs, and suboptimal dosing. Results from Comet-Ice will show whether these concerns are justified.

Perhaps a more important question is whether MAbs will ever play a big role in Covid-19, given vaccines' high efficacy and swift rollouts. Analysts at Baird believe that Vir’s Covid-19 efforts are likely to prove “NPV negative”, which essentially means loss-making, largely because of the vaccine successes but also because Vir is so far behind with its MAb project.

If this is true than even a knockout success with Comet-Ice might not matter much. Vir’s shares could have a lot further to fall.