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Is Vir Biotechnology Stock a Buy?

By Adria Cimino - Apr 16, 2020 at 8:43AM

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Vir shares have surged as the company works on COVID-19 treatments, but gains may be more moderate once the outbreak is over.

Vir Biotechnology (VIR -4.06%) shares have soared 134% since the start of the year as the company jumped into the race to find a treatment for COVID-19, the illness caused by the novel coronavirus. Vir's gains -- and gains for other drugmakers working on COVID-19 treatment and prevention -- came as the coronavirus outbreak expanded, driving the general market into bear territory. Now the question is whether Vir shares can move higher after such a performance.

A researcher examines test tubes in a lab.

Image source: Getty Images.

Vir's presence in this race isn't surprising. The clinical-stage immunology company is focused on the treatment and prevention of infectious diseases, with work targeting hepatitis B, influenza, HIV, and tuberculosis. The coronavirus is a natural addition to the list.

Vir has four technology platforms. The antibody platform involves identifying rare antibodies from disease survivors that have potential to neutralize pathogens and boost the immune system. Vir then engineers the antibodies to optimize their power. The company's T-cell platform uses the human cytomegalovirus -- a commonly occurring virus that's known for inciting T-cell response -- as a delivery vehicle for vaccines. Next on the list is the innate immunity platform. It's meant to create "host-directed" therapies instead of the more traditional methods of targeting pathogens. And finally, the siRNA (small interfering ribonucleic acid) platform involves interfering with messenger RNA in order to silence disease-causing genes.

Five programs

Excluding its recent work on the coronavirus, Vir has five programs in its pipeline from pre-clinical stages through phase 2. The most advanced program is VIR-2218, an siRNA treatment designed to inhibit hepatitis B protein production; if effective, the treatment would enable T-cells to attack the virus. Management said the treatment has been generally well tolerated in clinical testing and has shown reduction in hepatitis B infection. Vir plans on announcing more data from the trial in the second quarter.

Most recent news about Vir, however, has to do with its coronavirus work. The latest is the announcement that big pharma company GlaxoSmithKline (GSK 2.20%) is making a $250 million equity investment in Vir to gain access to its technology. As part of the agreement announced this month, the two companies will use Vir monoclonal antibody technology to identify anti-viral antibodies that could be used to treat or prevent coronavirus. The companies will move promising candidates into Phase 2 clinical trials within three to five months.

In a separate partnership, Vir and Alnylam Pharmaceuticals (ALNY 0.82%) expanded their agreement for the development and commercialization of RNA interference therapeutics for coronavirus. Vir will lead development of potential candidates discovered by Alnylam. At the proof-of-concept stage, Alnylam will have the option to share in profits or losses, or earn royalties.

GlaxoSmithKline's willingness to invest

I like the fact that Vir uses four different platforms. That and its involvement in various disease areas should reduce risk; if one program or platform ever falters, the rest of the pipeline still can move forward. GlaxoSmithKline's willingness to invest in Vir is another positive, highlighting the strength of the latter company's research.

However, from a financial perspective, Vir shows some fragility. The company reported declines in fourth-quarter and annual revenue because of a drop in grant revenue. Research and development costs more than doubled in the quarter, and net losses widened to more than $63 million from about $26 million in the year-earlier period. That said, Vir had more than $407 million in cash, cash equivalents, and investments at the start of the year and said it expects to be able to fund its operating plan at least through the end of next year.

This financial position isn't surprising for a clinical-stage biotech. These companies face research and development expenses but don't yet have products on the market to provide a revenue stream. What most concerns me about Vir are the steep gains in its shares on coronavirus news. Once the race to find a coronavirus treatment concludes -- or once the outbreak is over -- will there be room for upside over the long term?

I'm not so sure. Short interest in the shares, though down from its peak last month, remains higher than it was last year. In short selling, investors borrow shares so they can sell them now for a profit, with the promise they will buy them back at a later date. It is a bet on a stock's decline. Though more gains may be on the horizon for Vir in the near term, I wouldn't recommend buying this company as a long-term biotech investment at this point.

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Stocks Mentioned

Vir Biotechnology, Inc. Stock Quote
Vir Biotechnology, Inc.
$24.84 (-4.06%) $-1.05
GSK Stock Quote
$43.69 (2.20%) $0.94
Alnylam Pharmaceuticals, Inc. Stock Quote
Alnylam Pharmaceuticals, Inc.
$147.50 (0.82%) $1.20

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