Arvinas, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Arvinas is a clinical-stage biopharmaceutical company developing PROTAC protein degraders. It had no approved products and generated no product-sale revenue; reported revenue came from research collaborations and licenses.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $7.6 million | $30.1 million | $19.6 million | $38.1 million |
| Research and development | $30.0 million | $16.6 million | $75.2 million | $46.8 million |
| General and administrative | $9.3 million | $8.0 million | $26.1 million | $20.0 million |
| Operating loss | $31.7 million | Operating income of $5.5 million | $81.6 million | $28.7 million |
| Net loss | $30.8 million | $17.7 million | $77.8 million | $49.2 million |
| Loss per share, basic and diluted | $0.79 | $0.54 | $2.01 | $1.54 |
Cash flow: Operating activities used $60.7 million in the first nine months of 2020, versus $24.4 million in 2019. Investing activities provided $107.4 million, largely because maturities and sales of marketable securities exceeded purchases; financing activities provided $33.1 million, including $29.9 million net from an at-the-market stock offering.
Liquidity and debt: Cash, cash equivalents and marketable securities totaled $248.6 million at September 30, 2020, down from $280.9 million at December 31, 2019. Current assets were $258.0 million and current liabilities $39.5 million. Long-term debt was $2.0 million; the filing reports no material change in that balance. Management believes available funds will cover planned operating and capital needs into 2022, subject to assumptions that could prove incorrect. The company expects continued losses and additional financing needs.
No meaningful product gross margin is reported; the filing does not provide a clear margin measure. Accumulated deficit was $450.3 million. Stock-based compensation was $22.1 million for the first nine months. Common shares outstanding were 40.1 million at quarter-end and 40.5 million as of October 30, 2020.
Changes versus the prior comparable periods
- Revenue fell year over year, while R&D and G&A expenses increased. The company attributed expense growth mainly to clinical-trial and drug-manufacturing costs, personnel, and expanded platform and exploratory research.
- Comparisons are significantly affected by 2019’s approximately $24.7 million of revenue recognized for a license contribution to Oerth Bio and a corresponding approximately $24.7 million equity-method investment loss. Excluding that item, the filing says collaboration-related revenue increased in 2020.
- Nine-month net loss widened to $77.8 million from $49.2 million, reflecting higher operating expenses and the absence of the prior-period accounting effects noted above. Operating cash use also increased.
- Cash and marketable securities declined overall, although cash and cash equivalents alone rose to $89.0 million from $9.2 million at year-end, principally reflecting portfolio maturities and sales. The company also raised $29.9 million net through its ATM offering.
Outlook, developments and risks
- Clinical programs: ARV-110 for metastatic castration-resistant prostate cancer and ARV-471 for ER-positive/HER2-negative breast cancer were in Phase 1/2 trials. Arvinas initiated ARV-110’s Phase 2 expansion in October 2020. It expected to provide program updates in December 2020, initiate an ARV-471/palbociclib Phase 1b study in Q4 2020, and in 2021 begin an ARV-110 combination investigation, share interim ARV-110 expansion data, start an ARV-471 Phase 2 expansion, report ARV-471 combination data in the second half, and file an IND for ARV-766 in the first half. These are forward-looking plans, not reported outcomes.
- Safety: In ARV-110 testing, concurrent rosuvastatin use was associated with a potential drug interaction. One patient had a Grade 4 liver-enzyme elevation followed by acute renal failure; another had a Grade 3 liver-enzyme elevation. Rosuvastatin was subsequently prohibited in the trial. The company reported no other ARV-110-related Grade 3 or 4 events as of the cited data cutoff.
- COVID-19 and supply: Laboratories were temporarily closed from mid-March through May and later reopened; office staff continued remote work. The company reported no material adverse financial impact as of September 30, but warned that a prolonged outbreak could delay trials and research. It also disclosed a first-quarter delay in production of ARV-471 drug-substance building blocks at a China-based manufacturer.
- Funding and collaboration uncertainty: Arvinas expects increasing expenses and says it will need substantial additional financing. Future collaboration milestones and royalties are contingent, not assured. Additional equity financing could dilute shareholders; collaborations could require granting rights on unfavorable terms.
- Other obligations: Connecticut funding agreements include location and employment conditions. Breaching specified covenants could trigger repayment of forgiven or outstanding amounts and liquidated damages. The company reported no material legal proceedings and no off-balance-sheet arrangements.
- Management concluded disclosure controls were effective as of September 30, 2020; no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Whether clinical milestones and data updates occurred on the stated timelines, and how complete and durable the reported early responses are.
- How the ARV-110/rosuvastatin interaction affects trial eligibility, safety monitoring, and the potential use of other concomitant medicines.
- Actual cash burn, collaboration receipts, and whether the stated runway into 2022 remains reasonable as trial and development spending rises.
- Terms and conditions of Connecticut loans and assistance agreements, including potential repayment exposure.
- Future dilution from equity plans, the ATM facility, or other financing, and changes in shares outstanding.