Arvinas, Inc. — Q2 2023 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Arvinas is a clinical-stage biotechnology company developing PROTAC protein degraders. It has no approved products and has not generated product-sales revenue; reported revenue comes from collaborations and licensing.
Financial performance
| Metric (USD millions, except per-share data) | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | 54.5 | 33.8 | 87.0 | 60.3 |
| Research and development | 103.4 | 75.3 | 198.6 | 139.2 |
| General and administrative | 25.7 | 24.3 | 50.7 | 44.5 |
| Operating loss | (74.6) | (65.8) | (162.3) | (123.4) |
| Net loss | (66.6) | (70.0) | (148.5) | (133.4) |
| Net loss per share, diluted | (1.25) | (1.32) | (2.78) | (2.51) |
- Q2 revenue increased $20.7 million, primarily from Pfizer’s vepdegestrant collaboration. Six-month revenue rose $26.7 million, also principally reflecting that collaboration.
- R&D expense increased substantially as clinical trials, drug manufacturing, platform research, and personnel costs grew. R&D expense is reported net of Arvinas’s 50% cost-sharing arrangement with Pfizer for vepdegestrant.
- Q2 net loss narrowed by $3.4 million, helped by higher interest income and a lower equity-method loss, partly offset by higher operating costs. Six-month net loss widened by $15.1 million as expense growth exceeded revenue growth.
- Interest income contributed to total other income of $9.0 million in Q2 and $15.5 million for the half-year, compared with $1.7 million and $2.7 million, respectively, in 2022. No operating or net profit margin is reported; the company remained loss-making.
Cash, liquidity, debt, and cash flow
- At June 30, 2023, cash and cash equivalents were $90.6 million, restricted cash $5.5 million, and marketable securities $948.2 million—about $1.044 billion combined. Current assets were $1.057 billion and current liabilities $306.9 million.
- Six-month operating cash use was $179.9 million, versus $135.7 million in 2022. Investing activities provided $187.2 million, mainly reflecting marketable-security maturities and sales exceeding purchases; financing provided $2.0 million. Cash, cash equivalents, and restricted cash increased $9.3 million to $96.1 million.
- Management estimated that available cash, cash equivalents, restricted cash, and marketable securities would fund planned operating expenses and capital requirements into 2026. This is an estimate dependent on assumptions; management also said substantial additional financing will be needed for continuing operations and no committed external funding source exists.
- Debt was approximately $1.0 million, at a fixed 3.25% rate, with maturity in 2028. Deferred revenue was $540.6 million, including $230.1 million current and $310.5 million noncurrent; it is a collaboration contract liability, not borrowings.
- Marketable securities had $12.2 million of gross unrealized losses at June 30. The company said it did not intend to sell securities before recovery of amortized cost and considered the losses temporary.
Material changes and notable items
- R&D spending rose $28.1 million in Q2 and $59.4 million in the first half. For the half-year, reported program costs were $38.4 million for androgen-receptor programs, $59.7 million for the estrogen-receptor program, and $100.5 million for other research and development.
- Deferred revenue declined from $623.7 million at year-end 2022 to $540.6 million, principally as collaboration revenue was recognized. The filing estimates recognition of the remaining balance over future periods, including $110.2 million in the rest of 2023 and $200.9 million in 2024.
- The 2022 comparative statements were adjusted for an immaterial Oerth Bio equity-method accounting error. The adjustment increased reported revenue and operating results by $2.5 million for Q2 and $4.8 million for the first half, with equal offsetting equity-method losses and no effect on net loss, EPS, cash flows, or equity.
- An approximately $10.0 million accrual relates primarily to an early-stage contract dispute. The outcome and possible range of loss could not be estimated; the filing says resolution may involve a contract modification and/or payment.
- Stock-based compensation was $38.2 million for the first half; $83.8 million of unrecognized compensation expense remained, expected to be recognized over a weighted-average 1.8 years.
Outlook, programs, and risks
- Vepdegestrant (ARV-471): The company and Pfizer initiated the study lead-in for the Phase 3 VERITAC-3 combination trial in Q2 and continued enrollment in VERITAC-2; management expected to complete VERITAC-2 enrollment in the second half of 2024. Management also described planned additional combination studies and expected additional Phase 1b/2 trial activity in the second half of 2023. Preliminary data from a Phase 1b combination study showed a 60.7% clinical benefit rate among 28 evaluable patients; this is preliminary clinical evidence, not an approval or efficacy conclusion.
- Bavdegalutamide (ARV-110): Management expected to initiate a global Phase 3 trial in patients with specified AR tumor mutations in the second half of 2023, present updated Phase 1/2 data, and complete enrollment in a combination study with abiraterone.
- ARV-766: The company reported preliminary Phase 1/2 activity and tolerability findings in heavily pretreated patients and expected to initiate a combination trial with abiraterone in the second half of 2023. The filing describes these as early clinical findings.
- Management expected to submit an IND or CTA for BCL6 and LRRK2 programs by year-end 2023 and advance at least two other programs into enabling studies. The company expects operating losses and negative operating cash flows for the foreseeable future, with spending rising as development advances.
- Key risks include clinical-trial outcomes and timing, regulatory approval, manufacturing, competition, intellectual-property protection, commercialization and reimbursement, and the need for additional capital. Collaboration milestone payments and royalties are contingent; no sales-based milestones or royalties had been received through June 30, 2023.
- The new laboratory and office lease is expected to be occupied in 2025; once occupied, annual base rent is expected to range from $7.7 million to $8.8 million over a ten-year term. State assistance agreements also require the company to remain in Connecticut through specified dates and carry repayment penalties for noncompliance.
Important facts for investors to verify
- Whether clinical milestones and enrollment expectations disclosed for vepdegestrant, bavdegalutamide, ARV-766, BCL6, and LRRK2 were subsequently achieved, and how later data affect development plans.
- Whether cash use, collaboration receipts, and operating costs support management’s estimated runway into 2026, particularly as deferred revenue is recognized and trial spending increases.
- The status, possible resolution, and financial impact of the contract dispute underlying the $10.0 million accrual; the filing does not provide a clear possible loss range.
- The terms and potential dilution or funding implications of any future financing, including the available $300 million at-the-market program, under which no shares had been issued by June 30, 2023.
- Whether collaboration terms, milestones, cost sharing, or partner decisions change, and whether future milestone or royalty payments become achievable.