Arvinas, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021; filed November 3, 2021. Arvinas is a clinical-stage biopharmaceutical company developing PROTAC protein degraders. It has no approved products and has not generated product-sales revenue.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $9.3 million | $7.6 million | $20.4 million | $19.6 million |
| Research and development | $40.6 million | $30.0 million | $118.5 million | $75.2 million |
| General and administrative | $16.0 million | $9.3 million | $42.7 million | $26.1 million |
| Operating loss | $47.3 million | $31.7 million | $140.9 million | $81.6 million |
| Net loss | $46.8 million | $30.8 million | $138.0 million | $77.8 million |
| Loss per share, basic and diluted | $0.94 | $0.79 | $2.81 | $2.01 |
- Revenue is from research collaborations and licenses, recognized over the related performance periods; there was no product revenue. The filing does not present a product gross margin.
- At September 30, cash, cash equivalents, restricted cash and marketable securities totaled approximately $1.55 billion, versus approximately $688.5 million at December 31, 2020. Marketable securities were $1.29 billion.
- Operating cash flow was positive $595.2 million for the nine months, principally because deferred revenue increased $718.3 million, largely from the Pfizer ARV-471 agreement. This inflow should not be read as recurring cash generation from operations. Investing cash flow was negative $1.20 billion, mainly reflecting purchases of marketable securities; financing cash flow was positive $274.6 million.
- Long-term debt was $1.0 million, down from $2.0 million at year-end after the state of Connecticut forgave $1.0 million. Total liabilities of $787.1 million included $763.4 million of deferred revenue, rather than primarily conventional borrowings.
- Accumulated deficit was $629.9 million. The company reported a 0% effective income tax rate, principally because of a full valuation allowance against deferred tax assets.
Material changes versus the prior comparable period
- Nine-month net loss widened by $60.2 million year over year, while operating expenses rose by $60.0 million. R&D increased $43.3 million, reflecting expanded clinical, platform and exploratory work, higher personnel costs and stock-based compensation. G&A increased $16.6 million.
- Nine-month revenue increased only $0.8 million despite $3.6 million of revenue recognized from the new ARV-471 collaboration; lower revenue recognition from another collaboration partly offset that contribution.
- In July, Pfizer agreed to pay a $650 million non-refundable upfront amount for worldwide co-exclusive ARV-471 development and commercialization rights. The agreement also provides up to $1.4 billion in contingent regulatory and sales milestones. Arvinas and Pfizer generally share development costs and commercialization profits and losses equally, subject to exceptions.
- In September, Pfizer bought 3,457,815 Arvinas shares for approximately $350 million gross. The company recorded the shares at a fair value of $264.6 million and allocated the $85.4 million difference to the collaboration arrangement. Shares are subject to transfer restrictions.
Outlook, risks and notable items
- Management expects significant expenses and increasing operating losses for the foreseeable future and does not expect product-sales revenue in the foreseeable future. It said existing cash, cash equivalents, restricted cash and marketable securities should fund operating expenses and capital requirements for multiple additional years beyond 2024, while cautioning that assumptions could prove incorrect.
- Key programs were ARV-110 and ARV-471 in Phase 1/2 studies and ARV-766 in Phase 1. The filing describes planned clinical studies and data presentations, but approval, trial timing and outcomes remain uncertain.
- The Pfizer ARV-471 milestones are contingent, and Pfizer may terminate the agreement for convenience subject to notice provisions. Arvinas has limited control over the resources Pfizer devotes to the program. The collaboration also restricts the parties from pursuing competing products during its term, subject to exceptions.
- Arvinas entered a lease for approximately 160,000 square feet of laboratory and office space expected to be occupied in 2024. Base rent is expected to range from $7.7 million to $8.8 million annually over ten years; a $4.5 million letter of credit is collateralized by restricted cash.
- Management reported no material adverse financial impact from COVID-19 through September 30, 2021, but said a prolonged outbreak could disrupt operations and delay clinical or preclinical work. Other key risks include clinical and regulatory failure, manufacturing and collaboration dependence, future financing needs and dilution.
- The company had a $300 million at-the-market equity program available, with no shares issued under it as of September 30, 2021. Management said disclosure controls were effective; no material legal proceedings were reported.
Investor verification priorities
- Check subsequent clinical-trial progress, safety and efficacy data, enrollment and regulatory milestones for ARV-110, ARV-471 and ARV-766.
- Verify Pfizer collaboration execution, cost-sharing obligations, recognized revenue, termination provisions and whether contingent milestone conditions are achieved.
- Track cash use excluding large collaboration prepayments and assess whether the stated runway remains supportable as trial and facility costs increase.
- Monitor deferred-revenue recognition, stock-based compensation and potential dilution from equity awards or the $300 million at-the-market program.
- Review the new lease commitments, Connecticut loan covenants and risks that could affect development timelines or financing requirements.