ARVINAS, INC. quarterly report, Q1 FY2020

Business context and reporting period

Arvinas, Inc. is a clinical-stage biopharmaceutical company developing PROTAC targeted protein degraders. This unaudited Form 10-Q covers the three months ended March 31, 2020; comparisons are with the three months ended March 31, 2019 unless otherwise noted. The company had no approved products and no product-sales revenue.

Key financial metrics

Revenue was recognized from research collaboration and license agreements, not product sales. The filing attributes the increase mainly to the Bayer collaboration, which began in 2019, and increased Pfizer-related license, research and development activity. Operating expenses exceeded revenue by $23.41 million; the filing does not present a gross margin, and product gross margin is not applicable because there were no product sales.

At March 31, 2020, cash and cash equivalents were $36.11 million and marketable securities were $226.73 million, totaling $262.83 million. Total current assets were $270.20 million and current liabilities were $33.17 million. Total liabilities were $70.74 million, including $2.00 million of long-term debt and $56.20 million of deferred revenue. Accumulated deficit was $394.30 million. Shares outstanding were 38.67 million at quarter-end; 39,149,567 were reported outstanding as of April 24, 2020.

Material changes versus the prior comparable period

• Revenue increased 55%, while total operating expenses rose about 50%; net loss increased $7.33 million.
• R&D spending rose $7.54 million, reflecting greater platform and exploratory research, ER and AR program activity, personnel costs, and clinical-trial and manufacturing costs.
• G&A expense increased $2.28 million, primarily from personnel and facility costs, including higher stock-based compensation.
• Operating cash use increased $4.22 million. Cash and cash equivalents rose to $36.11 million from $9.21 million at year-end, largely because maturities of marketable securities exceeded purchases; total cash, cash equivalents and marketable securities declined to $262.83 million from $280.87 million.
• Weighted-average shares increased to 38.55 million from 31.33 million, contributing to the per-share comparison alongside the larger net loss.

Outlook, risks and unusual items

• Lead candidates ARV-110, for metastatic castration-resistant prostate cancer, and ARV-471, for ER-positive/HER2-negative breast cancer, were in Phase 1/2 trials. Management expected to share ARV-110 dose-escalation data at the ASCO meeting in Q2 2020 and ARV-471 data in the second half of 2020. These are historical expectations stated in the filing, not updated guidance.
• Management expected expenses and operating losses to rise as clinical trials, research, hiring, manufacturing and public-company costs expand. It expected no product-sales revenue for many years, if ever, and estimated available cash, cash equivalents and marketable securities would fund planned expenses and capital needs into 2022. The estimate depends on assumptions and could prove wrong.
• COVID-19 had no material adverse impact on reported results or financial position at March 31, but its future effect was uncertain. The filing reported pauses in enrollment at trial sites for both lead programs; one ARV-471 site had resumed enrollment. It also disclosed a delay at a China-based manufacturer of certain ARV-471 drug-substance building blocks, which management did not then expect to delay overall clinical development.
• Collaboration funding and potential milestones and royalties from Bayer, Pfizer and Genentech are contingent; the company had not received royalties and said it had no committed external funding source. Deferred collaboration revenue was $56.20 million, with $17.2 million expected to be recognized for the remainder of 2020.
• The company’s 50% equity-method investment in Oerth Bio had a carrying value of zero at March 31 after recognition of its share of losses. Arvinas stated it had no obligation to provide additional funding and no exposure to future Oerth losses.
• Connecticut financing includes a $2.0 million loan and location and employment-related conditions; failure to meet specified obligations may trigger repayment and liquidated damages. The filing reported no material legal proceedings and no off-balance-sheet arrangements.
• Disclosure controls and procedures were assessed as effective as of March 31, 2020. The company reported no material change in internal control over financial reporting during the quarter.

Most important facts for investors to verify

1. Whether ARV-110 and ARV-471 clinical progress, enrollment and subsequent safety and efficacy data matched the historical timelines and early observations described in the filing.
2. How COVID-19 affected trial-site enrollment, clinical operations and manufacturing supply after March 31, especially ARV-471 supply.
3. Whether the stated runway into 2022 remains supportable given the $16.95 million quarterly operating cash use and expected rising development costs.
4. The timing and conditions for recognition of deferred collaboration revenue, and the contingent nature of future partner milestones and royalties.
5. Compliance with Connecticut loan and location-related conditions, and the terms and maturity obligations of the outstanding $2.0 million debt.